Document o f The World Bank FOR OFFICIAL USE ONLY Report No. 48466 - GW INTERNATIONAL DEVELOPMENT ASSOCIATION INTERIM STRATEGY NOTE FOR THE REPUBLIC OF GUINEA-BISSAU FOR THE PERIOD FY09-FY10 May 20,2009 Country Department for Guinea-Bissau(AFCF1) Africa Region This document has a restricted distribution and may be used by recipients only in the performance o f their official Duties. I t s contents may not otherwise be disclosed without World Bank authorization. The previous Country Assistance Strategy for Guinea-Bissau (Report No. 16568) was discussed by the Board of Directors on May 12,1997 CURRENCY EQUIVALENTS (Exchange Rate as o f M a y 14,2009) Currency Unit = CFA Francs (CFAF) CFAF 1,000 = US$2.02 CFAF 655.96 = € 1.00 (Peg) US$ 1.00 = CFAF481.60 SDR 1.00 = US$ 1.52 FISCAL YEAR January 1 - December 3 1 ACRONYMS AND ABBREVIATIONS EAGB Empresa Publica de Energia e Agua da Guink-Bissau (Energy and Water Administracgo dos Porto da Guinea Public Company o f Guinea-Bissau) Bissau (Port Administration o f Guinea ECOWAS Economic Community o f West African Bissau) States ASYCUDA I Automated System for Customs Data EDF European Development Fund BCEAO I Banque Centrale des Etats de I'Afi.ique EFA-FTI Education for All - Fast Track Initiative de I'Ouest (Central Bank o f West African States) Extractive Industries Transparency CAIA Celula de Avaliqgo de Impacte Initiative Ambiental (Environmental Impact Evaluation Unit) Economic and Sector Work CAS Country Assistance Strategy I Euronean Union I CBMP Coastal and Biodiversity Managemen I EUR I Euro I Prniect FAD Fonds apicain de dheloppement CBO Community Based Organization (African Development Fund) CD Capacity Development FA0 Food and Agriculture Organization o f CDD Community-Driven Development the United Nations CEM Country Economic Memorandum FIAL Local Initiatives Fund CFAF Franc de la Communaute'financi2re FPCR Food Price Crisis Response d'Afi.ique (Franc o f the Financial GAVI Global Alliance for Vaccines and Communitv o f Afi-ica) Immunizations CPPR Country Portfolio Performance Review GDP Gross Domestic Product DENARP Documento de Estratkgia Nacional par6 GEF Global Environmental Facility a RedupTo da Pobreza (Nationa. GNI Gross National Income Povertv Reduction Stratew Paner) HDT I Human DeveloDment Index I I DPO I Develonment Policv Oneration HIPC Heavily Indebted Poor Countries ID- Demobilization, Reinsertion and Reinteaation Promam HIV/AIDS Human Immunodeficiency Virus / I DSA I Debt Sustainabilitv Analvsis HR I Human Resources ~DTIS 'I Diagnostic Trade Integration Study IBRD I International Bank for Reconstruction I and Develonment I .. 11 FOR OFFICIAL USE ONLY PAIGC Partido Afficano du Independgnciu du I I Commission I Guine‘ e Cab0 Verde (African Party for UNICEF 1 United Nations Children’s Fund the Independence o f Guinea and Cape Verde) UNOGBlS I United Nations Peace Building 1 Office in Guinea-Bissau __ - Support PARAP Programa de Apoio a Reforma da WAEMU IWest Afkican Economic and Monetary Administrap70 Publica (Program to Union Support Public Administration Reform) WFP World Food Programme PCU Project Coordination Unit WHO World Health Organization The World Bank Group greatly appreciates the close and fruitful collaboration with the govemment of Guinea-Bissau in the preparationo f t h i s Interim Strategy Note. The preparation o f this I S N was a team effort by the World Bank Group’s Guinea-Bissau Country Team. Many team members made substantial contributions to drafting and editing the document, participating in review meetings, and providing comments and advice. Special thanks go to Ronnie Hammad, Senior Operations Officer, for his very constructive strategic advice and inputs during a critical phase o f the document preparation; Alain d’Hoore, Lead Economist, particularly for taking charge o f the macro-economic analysis, amongst many other contributions; and to Ana Paula Lopes, Senior Operations Officer, and Carmen Pereira, Liaison Officer in Bissau, for jointly carrying out comprehensive consultations with various stakeholder groups. Special thanks also go to McDonald Benjamin, Country Program Coordinator, for his tremendous support to the finalization of the document; and to Harifera Raobelison and Danette Metcalfe, who skillfully mastered the processing of the document through the internal review steps. This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization. iv THE REPUBLIC OF GUINEA-BISSAU INTERIM STRATEGY NOTE TABLE OF CONTENTS .. EXECUTIVE SUMMARY.......................................................................................................... vi1 I. COUNTRY CONTEXT ......................................................................................................... 1 A . Geographic, Historical and Political Context ......................................................................... 1 B. Poverty and Social Conditions ................................................................................................ 2 C . Recent Economic Developments ............................................................................................ 5 D. Macroeconomic Prospects in the Context o f the Global Economic Crisis ............................. 7 . I 1 COUNTRY DEVELOPMENT PROGRAM AND ISSUES ............................................... 8 A . Country Priorities and Agenda ............................................................................................... 8 1. PRSP Objectives ...................................................................................................................... 8 2 . The Current Government’s Program ....................................................................................... 9 3 . Country Stakeholders’ Perspectives ........................................................................................ 9 B. Key Development Challenges and Cross-Cutting Issues........................................................ 9 1. Key Development Challenges ................................................................................................. 9 (a) The Immediate Challenge o f Fiscal Stabilization ................................................................... 9 (a) Fostering Accountability and Transparencyfor Good Governance..................................... 10 (c) Accelerating Growth: Improving Productivity in Agriculture .............................................. 13 (4 Accelerating Growth: Addressing the Collapse o f Basic Infrastructure Services ................ 14 (e) Accelerating Growth: Developing Extractive Industries ...................................................... 15 @ Addressing Human Development Constraints: Improving Basic Social Services ................. 15 2 . Cross-Cutting Issues .............................................................................................................. 16 (a) Weak individual, Organizational and Institutional Capacity ............................................... 16 (6) Gender................................................................................................................................... 16 (c) Environment .......................................................................................................................... 16 . I11 THE BANK’S INTERIM ASSISTANCE STRATEGY ................................................... 17 A . Implementation o f the Previous CAS ................................................................................... 17 1. Portfolio Management ............................................................................................................ 17 2 . Lessons from ICRs and IEG Evaluations .............................................................................. 17 B. The Current IDA and Trust Fund Portfolio........................................................................... 18 C . Proposed Interim Assistance Strategy - IDA and Trust Fund Resources............................. 19 Pillar I : Strengthening Economic Management and Laying the Foundations for Improvements in the Productive Sectors ......................................................................................................... 19 (a) Financing Activities .............................................................................................................. 19 (a) Non-Financing Activities ...................................................................................................... 20 (c) Key ISN Outcomesfor Pillar I .............................................................................................. 20 Pillar 1 1: Increasing Access to Basic Services, Especially in Rural Areas ................................. 20 (a) Financing Activities .............................................................................................................. 20 (a) Non-Financing Activities ...................................................................................................... 21 (c) Key ISN Outcomesfor Pillar 1 1............................................................................................. 21 Cross-Cutting Theme: Support for Capacity Development ........................................................ 21 D. Proposed Interim Assistance Strategy - IFC and MIGA Activities ..................................... 22 E. Next Steps: Towards a High Impact Program ....................................................................... 24 1. Agricultural Development ..................................................................................................... 24 2 . Transport Infrastructure ......................................................................................................... 25 3 . Electricity ............................................................................................................................... 26 F. Partnerships and Donor Coordination ................................................................................... 26 G. Monitoring and Evaluation ................................................................................................... 27 V . I V MANAGING R I S K S ............................................................................................................ 28 A . Political Risks ....................................................................................................................... 28 B. Macroeconomic Risks ........................................................................................................... 29 C . Governance Risks ................................................................................................................. 29 D. Program and Project Implementation Risks ............................................................. '............30 E. Fiduciary Risks...................................................................................................................... 30 . L i s t o f Tables Table 1: Guinea-Bissau i s Unlikely t o Achieve the MillenniumDevelopment Goals ..................... 4 Table 2: Guinea-Bissau . .Key Macroeconomic Indicators. 2004-2011 ........................................... 6 Table 3: Planned Interim Strategy Assistance to Guinea-Bissau in FY09-FY 10...................... 23 L i s t o f Boxes B o x 1: The EU Public Administration Reform Assistance Project ................................................ 12 List o f Annexes Annex A 1 : Guinea-Bissau I S N Results Matrix .............................................................................. 31 Annex A2: Country at a Glance ...................................................................................................... 33 Annex B2: Selected Indicators o f Bank Portfolio Performance and Management ......................... 35 Annex B3 : IDA Program Summary ................................................................................................ 36 Annex B3 : IFC/MIGA Program Summary ..................................................................................... 37 Annex B4: Summary o f Non-lending Services............................................................................... 38 Annex B6: Key Economic Indicators ............................................................................................. 39 Annex B7: Key Exposure Indicators............................................................................................... 41 Annex B8: Operations Portfolio: IBRDODA and Grants ............................................................... 42 Annex B8: IFC Committed and Disbursed Outstanding InvestmentPortfolio ............................... 43 Map (IBRD 33415) ......................................................................................................................... 44 vi EXECUTIVE SUMMARY 1. This Interim Strategy Note (ISN) presents the proposed Bank Group assistance to Guinea- Bissau through December 2010. I t aims at addressing selected, critical challenges within the confines o f IDA’S limited resource envelope for Guinea-Bissau, and at supporting the Government in i t s efforts to implement a basic transitional program in a challenging environment. At the same time, the I S N highlights the low level equilibrium trap in which Guinea-Bissau has been mired this past decade and underscores the limits o f an approach that i s too exclusively focused on crisis containment, which has produced the “muddling-throughYy results o f the last decade. It advocates for a stronger, more ambitious approach in the medium term, requiring a sustained critical mass o f resources from external partners, including the World Bank Group. These resources are essential to break the interlocking vicious circles o f economic and political instability in which Guinea-Bissau has been trapped for the last ten years since the 1998-99 civil war. .. 11. Guinea-Bissau, with a population o f 1.7 million, i s a fragile state that i s politically unstable and highly vulnerable to internal and external risks. Macroeconomic conditions remain challenging with continued large domestic primary deficits and domestic debt accumulation in spite o f recent progress. In the ten years since the 1998-99 internal conflict, economic growth has barely exceeded population growth and income per capita i s s t i l l one sixth below pre-conflict rates. The country’s power system i s operating less than 2 M W o f generation capacity. The port o f Bissau i s in need o f major rehabilitation, and the agricultural sector, which has tremendous potential for growth and poverty reduction, remains largely underdeveloped. The mining sector, which i s potential a major source o f growth, public revenues and export earnings, remains poorly exploited and inadequately regulated. Together, political instability, l o w growth, limited public resources, and weak institutional capacity have constrained public service delivery, making the achievement o f most MDGs out o f reach. The country has, in recent years, also become vulnerable to drug-traficking, with the potential for a major impact on the social, economic, and security structures o f the country and the sub-region. ... 111. While a democratic drive has begun to take root, including adherence to free and fair electoral processes, political and institutional development remain fragile. In the past five years, three national elections were conducted and widely considered transparent and fair, with high participation rates-the legislative election o f November 2008 being the most recent. In the wake o f the assassinations o f the President and o f the Army Chief o f Staff in March 2009, the population remained calm and constitutional procedures were respected. Little more than three weeks after these tragic events, the National Assembly passed both the new Government Program and the new budget with a clear majority. Nonetheless there remains a high level o f political uncertainty in the run-up to the Presidential elections, scheduled for June 28,2009. iv. At the heart o f the country’s disappointing performance is a series o f vicious circles at the political, economic and sector levels that are locking the country in a low-equilibrium trap of instability and low growth. Political instability and governance issues have damaged institutions, contributed t o high turnover in senior positions and to the exodus o f qualified public sector managers, and undermined law and order as well as the provision o f essential public services. This has rendered more difficult the environment for public investment and for both foreign and domestic private sector investment. Political instability has also increased vulnerability to macroeconomic shocks, limited external aid, and blocked exit from high levels o f debt. v. As much as political instability and governance issues have undermined the basis for growth and development, the lack of economic growth has in turn undermined political normalization. L o w growth has translated into a lack o f buoyancy in state revenues and complicated vii fiscal adjustment, resulting in a frequent inability to pay public suppliers and employees. Lingering arrears to domestic suppliers and recurrent episodes o f arrears on wages and pensions have fostered deep discontent among the military, civil service and private sector. L o w growth has also enhanced the relative attractiveness o f rent-seeking from public revenues or natural resources. These conditions have turned Guinea-Bissau into fertile ground for drug-trafficking, which could ultimately result in huge costs t o the country, the sub-region and to Guinea-Bissau’s international partners. vi. The last CAS (Report No. 16568) was presented to the Board in May 1997. Since then, the Bank has completed 8 projects amounting to US$99 million, mostly in infrastructure, economic management, health and education, with generally mixed results. Attempts at macroeconomic stabilization faltered early in the decade. Early in 2008 the Government embarked on an economic program supported by the IMF’s Emergency Post-Conflict Assistance (EPCA), which i s continuing in 2009 and could pave the way to a medium-term program under the IMF’s Poverty Reduction and Growth Facility (PRGF) in late 2009. vii. The program proposed under this I S N focuses on assisting the Government in implementing a core transitional program that i s commensurate with the limited I D A allocation for Guinea-Bissau. Guinea-Bissau’s allocation stands at SDRl2 million (approximately US$19 million) over 3 years, which requires that the strategy be highly focused and leveraged. Since Guinea-Bissau i s in a situation o f debt distress, IDA resources are provided on grant terms, per the stipulations o f the grant allocation system agreed with IDA donors for the IDA-15 period (FY09-FY11). The proposed strategy aims to support the Government in carrying out a core transitional program, ahead o f Guinea-Bissau reaching the Completion Point under the HTPC Initiative. This transitional program i s articulated around two pillars: (i) strengthening economic management and laying the foundations for improvements in the productive sectors, and (ii) increasing access to basic social services, especially in rural areas. Capacity development i s a cross cutting theme. These goals are aligned with the 2006 poverty reduction strategy, the PRSP (Guinea-Bissau’s DENARP), and the Government Program. Frontloading support to Guinea- Bissau during this transitional period will be critical since achievement o f the HIPC Completion Point will allow the country to reduce the impact o f a significant debt overhang on growth and free desperately needed resources. ... vm. The I S N financing i s being front-loaded. I t proposes a programmatic series of two development policy operations, I D A and trust fund financing o f investments notably in rural areas, and TA for improved economic management. In addition, ongoing multi-sector infrastructure financing, coastal and biodiversity support and new financing through the State and Peace-building Fund (for economic management, participatory rural development and health), will continue to support efforts to increase access to public services. Furthermore, support for an expansion o f quality primary education under the Education-for-Al Wast-Track-Initiative i s under preparation. ix. Beyond the short span of the ISN, the Bank, together with donor partners, can play a critical role in helping Guinea-Bissau to break out o f the low equilibrium trap o f instability, weak governance and low growth. This could be achieved through leveraging IDA’S convening power, i t s platform for broader donor support, i t s technical expertise and the quality o f i t s policy advice for the mobilization o f resources behind a High Impact Program o f assistance. The program would be designed to achieve transformative change in key sectors o f the economy (including agriculture, energy and transport infrastructure), so as to break the vicious circles in these key areas in which the country i s trapped. Continued budget support and technical assistance will also be needed to support complementary economic reforms and institutional development. Such a High Impact Program would require significantly higher resources than are available in the current I S N envelope and in other donors’ current levels o f support. The development o f this program at the sectoral level and i t s costing would be undertaken during the I S N period in collaboration with other partners and would thus inform the ... Vlll subsequent CAS and ultimately a donor Consultative Group meeting. Moreover, this program can only succeed if there i s a strong commitment from the Government and the other key national stakeholders to changing the “rules o f the game” so as to promote favorable conditions for the success o f a major donor engagement. It would therefore require and draw on broad consultations by the Government o f Guinea- Bissau after the Presidential elections along with key national stakeholders and with donor partners. x. There are significant r i s k s to the Bank’s engagement in Guinea-Bissau. These include high political and macroeconomic risks as well as substantial governance, progradproject implementation and fiduciary risks. Guinea-Bissau’s high political instability and frequent instances o f military unrest and interventions in the political sphere are compounded by high macro-economic risks associated with i t s weak fiscal position and narrow domestic revenue base, its heavy indebtedness, and high vulnerability to external shocks. The country’s governance challenges include weak institutions and rule o f law and vulnerability to corruption, while high turnover in political and senior technocratic leadership as well as insufficiently trained and poorly motivated civil servants slow the implementation o f reforms and projects, and compound procurement and financial management risks. Following the incidents o f early March, multilateral bodies (like the Community o f Portuguese Speaking Countries, ECOWAS and WAEMU) have stepped up their engagement by closely monitoring the situation, providing platforms for dialogue between key stakeholders, and supporting and advising the government. In order to mitigate risks to the Bank’s program, the I S N i s incorporating capacity development as a cross-cutting theme aimed at ensuring adequate TA to strengthen public institutions. The Bank has strengthened i t s emphasis on demand-led community-driven development approaches. Further the Bank will improve strategic communication and dialogue with country stakeholders and donor partners, and will include thorough political economy analysis in the preparation o f future operations. Macro-economic risks will be mitigated through close economic monitoring, budget support and interim debt relief, in close coordination with the IMF. A strong program o f procurement and financial management reforms will be supported which will also serve to mitigate governance-related risks. Residual risk after mitigation remains substantial, although the Bank i s convinced that the potential rewards from accompanying Guinea-Bissau through the transition to a higher impact program that breaks the country’s vicious circles and l i f t s it out o f i t s l o w level equilibrium considerably outweigh the risks. ix X I. COUNTRY CONTEXT HISTORICAL A. GEOGRAPHIC, AND POLITICAL CONTEXT 1. Guinea-Bissau i s a small country at the West African coast located between Senegal to the North, the Atlantic Ocean t o the West, and Guinea-Conakry t o the East and South. The country has an estimated 1.7 million inhabitants and a GNI per capita o f US$200 (in 2007 per the Bank’s Atlas methodology). It comprises numerous ethnic groups, including the Manjacos and Pepel, concentrated in the North o f the country, the Fula and Mandinga, predominant in the East, and the Balanta, concentrated in the central Oyo province. Roughly half the population i s Muslim, while the other half follows animist and Christian traditions. Guinea-Bissau has close economic, cultural and historical ties with countries in the sub-region such as Senegal, Guinea (Conakry), The Gambia, and Cape Verde-with which it shares language ties and a joint history o f struggle for independence. 2. Guinea-Bissau i s endowed with good soils, high rainfall and significant mineral endowments. I t i s located in the Guinean agro-ecological zone where annual precipitation rates exceed 1,100 mm. The country has abundant water and a low-lying topography with a tropical interior, drier savannah and swampy coastal areas, as well as an archipelago o f islands o f f i t s shores. Guinea-Bissau i s interlaced by a network o f rivers, and river transport has been important throughout its history. Road transport i s more difficult due to the paving o f just one-third o f the country‘s 4,380 km road network, and large parts o f the country are cut o f f during the rainy season, even though the primary road network has been upgraded significantly with EU support. Subsistence food crop production-comprising rice (the country’s main staple), sorghum, maize, plantains and cassava-accounts for about 46% o f the country’s GDP and employs over 80% o f the local workforce. Nonetheless, Guinea-Bissau’s principal crop i s cashew, which accounts for over 90 percent o f exports and 17 percent o f Government revenues. Fishing i s an underdeveloped sector, but with great potential as a growing source o f export and domestic revenues (i.e., from sale o f fishing rights). The country also has as yet untapped phosphate, bauxite and petroleum potential. 3. The short post-independence history of Guinea-Bissau has been marked by deep political instability. While most neighboring countries had become independent in 1960, it took a long and fierce guerilla struggle for Guinea-Bissau to achieve independence in 1974, with few structures for effective governance in place. JoZo Bernard0 Vieira, who seized power in 1980, ruled the country for almost 20 years until he was ousted after the internal conflict o f 1998-99. Further strife ensued in 2003 with the ouster o f President Kumba Yala. Since then, three elections have taken place-two legislative in 2004 and 2008, and a presidential election in 2005 that led to Vieira’s return to the Presidency. All elections were deemed reasonably free and fair and the National Assembly i s a vibrant albeit highly polarized legislative chamber. Even with the conduct o f broadly successful elections, instability has continued. Since 2000, eight Prime Ministers have been appointed for eight different governments-an average time- in-office o f only about one year. 4. Sustained political instability, conflict and weak institutions make for a complex socio- political landscape and a precarious governance structure. The high turnover among senior policy makers, senior civil servants and public enterprise managers has undermined the state’s performance. Short-lived governments have focused on day-to-day business, with limited ability to develop, let alone implement, long term strategies. For example, the preparation o f the first PRSP, was initiated in 2001 but repeatedly delayed and only completed in 2006. Recurrent delays in meeting salary, pension and other contractual obligations are fostering deep discontent among the c i v i l service and domestic suppliers, and contributing to the exodus o f qualified human resources. 1 5. The continuous intervention of the military in the political arena adds another level o f complexity to a difficult governance situation. The military has historically intervened in civilian politics on countless occasions. Pension and salary payment backlogs, very poor living conditions in the barracks and insufficient sustenance have increased the military’s discontent with civilian authorities and weakened their ability and resolve to address one o f Guinea-Bissau’s most serious sources o f insecurity, namely drug-trafficking. In October 2008, the ECOWAS Ministerial Conference on Drug Trafficking, held in Cape Verde, approved an Action Plan to address drug trafficking in the sub-region. A Round Table on the restructuring and modernization o f Guinea-Bissau’s defense and security sector was also held in Cape Verde, on April 20-21,2009. It i s hoped that the latest Round Table and i t s results will help to accelerate the dynamics o f the long overdue defense and security sector reforms in the country, with the support o f the international community. 6. Notwithstanding these challenges, a fragile democratic drive has begun to take root. In last November’s legislative electionsthe third o f three broadly free and fair elections held during the last five years-the historic independence party, PAIGC, won a clear majority with 67 out o f 100 seats in the National Assembly. Shortly after the elections, an attempt to kill the President o f the Republic in his residence failed and just over three months later, on the night o f March 1-2,2009, both the Army Chief o f Staff and the President were killed in succession. The population remained calm following these disturbing events, and as provided by the Constitution, the Speaker o f the National Assembly was sworn in as Interim President on March 3, 2009. Presidential elections, which according t o the Constitution are supposed to take place within 60 days, are now scheduled to take place on June 28, 2009.’ Little more than three weeks after the tragic events, the National Assembly passed both the new Government Program and the budget with a clear majority. Nonetheless, political violence on the part o f military factions continues to threaten the fragile consensus that emerged in the aftermath o f the tragic incidents o f early March, and shifting alliances between segments o f the military and political actors make it more difficult to anticipate the role o f the military in the political transition. Two prominent, outspoken critics o f the governance situation were recently arbitrarily arrested and tortured, contributing to political unease in the run-up to the Presidential elections. Nevertheless, civil society i s increasingly vibrant and vocal, demonstrating for peace following the November 2008 attack on the President’s residence, and calling for increased efficiency, transparency and accountability o f state institutions. There i s an overwhelming feeling that Guinea-Bissau needs to put i t s past behind and initiate a new cycle o f stability and improved governance, and a hope that the Presidential elections, following on the election o f a clear majority in the legislature last November, will open a window o f opportunity for stability over the next few years. B. POVERTY AND SOCIAL CONDITIONS 7. Guinea-Bissau raqks 171 out o f 179 countries on the 2008 UNDP Development Index and two-thirds of its population lives in poverty. Poverty i s widespread-according to the 2006 National Poverty Reduction Strategy (known by i t s Portuguese acronym as DENARP), 66 percent o f households are living below the poverty line, 22 percent o f which live in extreme poverty. The incidence o f poverty i s uneven across age groups (with particular vulnerability for children and youth), and i s highest for those who have less education, work on agriculture or live in rural areas, where almost 80 percent o f the poor live. The absolute poverty rate (excluding Bissau) o f 69 percent masks large regional differences- ranging from 80 percent in Oyo to 64 percent in Cacheu and 52 percent in Bissau, the capital city. Due to i t s high concentration o f households, Bissau has the largest share o f the poor in the country, 21 percent, followed by Oyo at 18 percent with other, less populated provinces accounting for between 12 and 14 percent o f the poor. ’ The Presidential elections w i l l be fi l l y funded by donor contributions, since there is n o fiscal space for additional expenses to this end. 2 8. Gender i s an important factor in the incidence o f poverty, vulnerability and protection o f rights. A breakdown by gender and age group reveals that the incidence o f poverty i s slightly higher for women below 31 years o f age and above age 65 than for men in those age groups (up to 3 percentage points o f difference in the poverty headcount measures). By contrast, women tend t o be better o f f than men within the 31-65 age cohort (by 2 to 10 percentage points). T h i s may be attributable to the fact that women traders dominate the informal market while men mostly seek salaried employment, which i s hard to find given the bleak situation o f a large part o f the private sector. Analysis undertaken for the IPSA2 indicated that in rural areas, female heads o f households were 23 percent more likely to meet the food needs for the household than male heads o f household. Additionally, female-headed households in rural areas were found to have consumption levels 20 percent higher on average than households headed by males. At the same time, discriminatory social practices imply significantly lower consumption levels (in the range o f 15-19 percent in rural areas) for households headed by divorced or widowed women. Women are also highly vulnerable to HIV, as there i s a very low level o f knowledge about prevention. 9. Increasing poverty and vulnerability in urban areas i s taking on added urgency. Arrears in salary payment to civil servants severely strain urban households. According to the 2005 IPSA survey, over 90 percent o f urban families are engaged in the informal sector, or a mix o f informal and formal, mostly public service. With scant opportunities for steady income and the recent surge in prices for food and energy, an increasing number o f households slipped into deep poverty, living for part o f the year on one meal a day-a phenomenon referred to as urn tiro-the “one shot.” 10. Largely as a consequence o f political instability, achieving most o f the MDGs already appears out o f range. The country i s not likely to reach any o f the MDGs by 2015, and it may fall dramatically short without a substantial infusion o f donor support and significant investment in key sectors in the short run (see Table 1). 11. As an example, despite progress in recent years, the country i s not on track to meet its MDG target regarding universal primary education. The recent expansion o f primary education coverage was not accompanied by improvements in internal efficiency and quality. Today, there are twice as many students in primary education as there were ten years ago, but only six out o f 10 children who enter the first grade complete the full cycle. Many who do complete primary education remain functionally illiterate due to the poor quality. The gender gap at the primary level has been narrowing, but a bias remains between socio-economic groups. The continuing expansion o f primary education will also maintain the pressure on secondary school enrollment. Tertiary education i s weak: technical and vocational training are not meeting the needs o f the labor market in spite o f significant investment in the opening o f two universities. Guinea-Bissau could become eligible for funding under the Education-For- All - Fast Track Initiative (EFA-FTI). An Education Sector Plan i s being developed and costed-the Bank i s providing analytical support in this area under a Public Expenditure Management and Financial Accountability Review (PEMFAR). *World Bank (AFTP4): Integrated Poverty and Social Assessment, (IPSA) Vol. 11, Conflict, Livelihoods and Poverty in Guinea-Bis,sau; May 2006. 3 Table 1: Guinea-Bissau i s Unlikely to Achieve the Millennium Development Goals 0bj ective Indicator 1990 2000 2004 Target 2015 1. Reduce extreme and Rate o f absolute poverty (%) 49 64,7 (I) 683 24,5 absolute poverty Rate of extreme poverty (%) 26 21,o (1) 22 13 2. Universal Primary Rate o f school enrollment (%) 23 45,3 56.9 100 Education Completion 3. Gender Equality Gender Parity in Primary 56 67 83 100 Education (percent girlshoys) 4. Reductionof Infant Under 5 Mortality Rate (per 240 239"' 205,2 80 Mortality 1000 live births) (3) Infant Mortality Rate (per 142 122(3) 47,3 1000 live births) 5. Improve maternal Maternal Mortality Rate (per 914 822 229 health 100,000 live births) 6. Combat HIV/AIDS, HIV/AIDS Prevalence Rate 5.9 7.8 5.9 malaria and other diseases 7. Ensure environmental Percentage o f population 79 sustainability without sustainable access to safe drinking water Y Data o f (I) 2002. ("Data o f 1999. (3) Data o f 2005 Source : u Rapport sur les objectifs du millenaire pour le d6veloppement 2004 B, and data used for the elaboration of the UNDP u National Human Development Report 2006 for Guinea-Bissau,. 12. The majority of people have limited access to quality health care, which largely explains poor health outcomes. Access i s particularly limited for the poor. The national health care system faces multiple constraints. Inadequate monitoring and evaluation and l o w data reliability prevent appropriate strategic decision making. Moreover, supervision o f health facilities, which i s essential to manage and maintain the performance o f the health network, i s irregular due to a lack o f funds and inadequate coordination. Equipment shortages and poor infrastructure coupled with weak management capacity compromise program implementation. 13. Over the last years, mixed results were achieved in child immunization and malaria. There are signs that effective interventions have not been sustained in terms o f child immunization, with large fluctuations in coverage in recent years. Even with recent signs o f exemplary 30 percent reductions in the incidence o f new cases, malaria remains the number one public health issue in Guinea-Bissau. The successes to date with regard to malaria reflect, in part, the increased availability and extensive use o f insecticide-impregnated bed nets, particularly by vulnerable groups. On the curative side, only 46 percent o f children with fever received appropriate treatment in 2006, mainly because the shift towards artemesinin-based combination therapies (ACT) has been slow and drug shortages are recurrent. 14. There i s mounting concern that the HW/AIDS pandemic i s spreading rapidly. Different estimates place the HIV prevalence rate among adults between 3 and 8 percent, significantly higher than in neighboring Senegal or Guinea-Conakry. Access to HIV/AIDS treatment i s very limited. Despite the availability o f generic anti-retrovirals (ARV) from Brazil and funding from the Global Fund to Fight 4 AIDS, Tuberculosis and Malaria (GFATM), only 496 people received treatment in the first quarter of 2007. Challenges in this regard include the poor status o f the health facilities and the poor capacity for supply-chain management. Stock-outs o f pediatric ARVs and o f testing supplies occurred in 2007 and in early 2008. Misconceptions about W / A I D S transmission remain widespread, causing serious stigmas among persons living with HIV/AIDS. 15. The vast majority o f people do not benefit from any formal social protection. Formal social protection arrangements, such as health insurance and pension schemes, are affordable to only a small segment o f the population. Government transfer programs have limited scope and impact. Because o f these limitations, various segments o f the population rely o n informal risk management strategies, including social networks, community mutual faith-based support and saving schemes. 16. Guinea-Bissau faces challenging conditions with regard to social development. In particular, as noted above, Guinea-Bissau faces important challenges in the areas o f social inclusion and social cohesion. While Guinea-Bissau has not suffered the same level o f inter-ethnic strife as have other countries in Africa, there i s a potential for tension along ethnic lines. Opportunities are unequal across geographic, gender and other parameters, and vulnerability t o drug-related crime and social conflict i s high. At the same time, with regard to social accountability, Guinea-Bissau’s increasingly lively c i v i l society has engaged in a series o f dialogues at the grass-roots level around the country over the past two years, both around the national poverty reduction strategy and around the way forward for promoting peace, the latter facilitated by an N G O called Interpeace. These efforts represent valuable steps towards strengthening governance through social accountability. ECONOMIC C. RECENT DEVELOPMENTS 17. Despite a difficult international environment and continued challenges on the political and macroeconomic policy fronts, economic performance improved slightly during 2007-08. Economic growth accelerated from 0.6 percent in 2006 to 2.7 percent in 2007 and 3.3 percent in 2008, thanks in part to increased agricultural production-agriculture accounts for close to 55 percent o f GDP. This reflected a return o f normal rains and a response to rising prices for cashew nuts, the primary export, which more than offset the negative aggregate impact o f higher fuel and food prices. Growing agriculture in turn drove commerce and transportation, while the small industrial sector continued to contract with the near collapse o f the power company. Modem services-e.g. banking and telecommunications-have also continued to expand. 18. Inflation accelerated to 4.6 percent in 2007, and over 10 percent in 2008, driven mainly by the surge in food and oil prices given the country’s heavy reliance on food and fuel imports? Since 1997, Guinea-Bissau has been a member o f the regional West African Economic and Monetary Union (WAEMU), with a common currency pegged to the Euro and a monetary policy managed by the Central Bank o f West African States (BCEAO). Inflation has generally been low, with variations driven mainly by large domestic or external shocks. Surging o i l and food prices in 2007-08 brought inflation well above its previous average o f about 2 percent since 2000. As a result also, the external current account deficit (excluding official transfers) widened to almost 14 percent o f GDP in 2008 from 8.6 percent o f GDP in 2007, financed by official grants and a small drawdown o f foreign reserves. Guinea-Bissau’s share in the regional pool o f reserves o f the BCEAO has averaged over 8 months o f imports o f goods (See Table 2). R i c e constitutes about 16 percent o f total imports and other food imports add another 18 percent, despite the country’s large share o f agriculture in GDP. Fuel imports represent about 25 percent of total imports. Total-imports stood at a third o f GDP i n 2008. 5 Table 2: Guinea-Bissau -- Key Macroeconomic Indicators, 2004-2011 2004 2005 2006 2007 2008 2009 2010 2011 2.2 3.5 0.6 2.7 3.3 1.9 3.1 3.8 - Real GDP uowth 0.8 5.6 -0.1 4.6 10.4 3.6 2.5 2.8 Inflation (annual average %) 44.0 20.6 5.0 25.9 20.7 8.5 6.8 6.9 Broad money growth (annual %) -14.2 -11.9 -9.4 -10.2 -5.8 -7.0 -7.4 -6.9 Fiscal bal. commitment basis (% GDP, incl. grants) -7.2 -6.9 -7.3 -10.5 -6.1 -7.4 -5.4 -4.6 Domestic primary balance (YOGDP) Current acc. bal. ('YOGDP, incl. official transfers) 6.2 -0.6 -11.3 10.1 -1.9 -3.6 -5.7 -4.8 Current acc. bal. (% GDP, excl. official transfers) -4.9 -8.2 -24.4 -8.6 -13.8 -15.6 -12.8 -1 1.6 Off foreign reserves' (months o f import) 7.6 8.9 7.2 10.9 9.1 10.0 11.9 13.0 Nominal stock of External debt (% GDP) 461.6 439.6 423.2 362.3 333.3 312.2 183.0 152.2 Domestic debt' (% GDP) 29.3 28.2 27.0 25.3 23.1 19.6 17.3 - Note: Data for 2004-2007 are actual values; data for 2008 are estimated and data for 2009-201 1 are projections. 1/ represents the net foreign assets in the Central Bank BCEAO in months of imports of goods 2/includes debt to the banking system (BCEAO and commercial banks), debt to the private sector, arrears on salaries, and contribution to the regional organizations. 19. I n early 2008, the government started a one-year program under the ZMF Emergency Post- Conflict Assistance. The program aimed to restore fiscal stability, targeting a reduction in the domestic primary deficit t o just above 4 percent o f GDP and a strict policy o f no new accumulation o f domestic arrears. The program had a strong structural plank in the revenue and expenditure management areas on which there was broadly satisfactory implementation progress throughout the year, underscoring Government commitment to reform public financial management. Fiscal performance under the EPCA program was satisfactory until mid-year but weakened under the weight o f external and political shocks. The surge in fuel and food prices prompted the Authorities to adopt some limited measures to soften the While wage spending came out above original targets, mainly owing to impact on the p ~ p u l a t i o n . ~ recruitments o f contractuals in the education sector, some wage bill compression was achieved in relation to GDP, reflecting a reduction in real wages due to the lack o f adjustment o f nominal wages to high inflation. Overall, spending envelopes remained broadly within program targets. However, with the brief bouts o f political uncertainty related to the dismissal o f the Parliament and Government in August and the failed coup attempt in late November, domestic revenues losses late in the year led to a higher domestic primary fiscal deficit than envisaged, estimated at close to 6percent o f GDP versus a target o f about 5 percent o f GDP. In turn, lower revenues, together with a shortfall in budget aid, led to the accumulation o f new arrears, mainly on wages, equivalent to about 4 months. 20. The financial sector has recovered in recent years, but remains underdeveloped. With the opening o f three new banks in recent years (all foreign and privately owned), bank deposits and credit have increased. The fairly high rate o f growth o f money over 2004-08 reflects mainly a continued process o f re-monetization. Nonetheless, financial intermediation remains embryonic-total domestic credit at end-2008 i s equal to only 6.5 percent o f GDP, the lowest in the WAEMU region. Political and macroeconomic instability, a large informal sector and lack o f proper financial accounting in most firms, difficulty in securing collateral, and the limited geographic reach o f banks remain key obstacles to expanding bank lending. By the same token, the local banking sector i s largely insulated from the global financial crisis, though difficulties at the head offices o f (mostly regional) foreign banks could undermine the confidence o f depositors. All rice imports were temporarily exempted from import taxes and customs duties were reduced on diesel imports. 6 D. MACROECONOMIC PROSPECTS IN THE CONTEXT OF THE GLOBAL ECONOMIC CRISIS 21. Real GDP growth in 2009 i s expected to slow to about 2 percent under the current global economic context, assuming no further major political disturbances. Growth will be supported by an expansion o f food crops and some gains in services as Government payments to employees and suppliers normalize. The global slowdown i s expected to negatively impact Guinea-Bissau mainly through export values and remittances. A third channel-a potential decline in donor commitments-is difficult t o quantify at this time. Prices for cashew nuts, the main export crop, are expected to be almost 30 percent lower than last year. Remittances, which are currently equivalent to about 7 percent o f GDP, are expected to decline by more than 10 percent. These developments will constrain real GDP growth-growth projections for 2009 were revised down from 3.6 percent earlier this year-and negatively impact the poor in rural areas, as well as put pressure on the budget and current account. Partially offsetting this development, sharply lower food and fuel prices should provide a boost and contribute to lower inflation o f about 3.5 percent, against an earlier projection for 2009 o f close to 7 percent. 22. I n this difficult environment, fiscal policy will be even more challenging. In early 2009, the new Government immediately reaffirmed i t s commitment to sound macroeconomic management, and requested further support under the IMF’s EPCA. Under the program, the domestic primary fiscal deficit i s expected to widen to some 7.4 percent o f GDP, from an estimated 5.8 percent in 2008 as tax revenues, hard hit by the expected decline in cashew nuts prices and lower imports values, are expected to decline by about 3 percentage points o f GDP. The wage bill i s expected t o be frozen again in nominal terms, yielding a small decline in relation to GDP. Tighter budgetary controls and new surrender rules for administrative revenues collected and partially retained by the originating administrations should allow for a small decline in non-wage spending and i t s reorientation towards priority sectors, such as education and health. Overall, the ability o f the Authorities to sustain a fiscal stance within the bounds o f their fiscal program will again require tight control o f spending envelopes, which they are set to deliver, as well as timely budget support. 23. Looking forward, the medium-term macroeconomic outlook i s moderately favorable, assuming that the negative impacts of the global crisis do not markedly intensify. Under the baseline medium-term scenario-a scenario that does not assume the High Impact Program in energy, transport and agriculture sectors that i s being developed for the next C A S - G D P growth in 2010-12 could accelerate to between 3.5-4 percent per year, assuming that political stability gains traction, that fiscal stabilization proceeds, and that donors continue to support the budget in line with recent experience. There is, however, considerable uncertainty over other factors that can affect economic performance, and even this unambitious growth outlook will be highly contingent on the global recession not deepening, fiscal stabilization being sustained and further donor support materializing at a steady pace. Stabilization o f cashew nuts prices and continued high prices for rice above recent trend levels, along with further efforts to improve food security, could support continued growth in agriculture. If political and fiscal stabilization take hold, even gradual gains in investor and donor confidence could translate into moderate momentum in private and public investment. Modest improvement in the electricity sector could support higher growth, in view o f the l o w starting point. As Guinea-Bissau i s a member o f the regional West African Economic and Monetary Union, medium-term inflation rates should return to the regional average o f about 3 percent per year by 20 11,provided food and energy price increases do not re-emerge. 24. A deepening o f the global slowdown could also negatively affect Guinea-Bissau’s economy, especially as its fragile stabilization relies heavily on high sustained donor support. On current assumptions, trade and private financial channels are unlikely to transmit a significant shock to the local economy, given its structure and the nature o f these linkages. Still, a deeper-than-expected drop in the world price for cashew nut, Guinea-Bissau’s sole commodity export, could stifle the nascent recovery in agriculture. Lower food and fuel prices could partly offset these effects on the economy at large-the 7 inflationary impact o f recent price increases was particularly high in Guinea-Bissau, compared to other CFA zone countries. A deeper than expected fall in remittances would also weigh heavily on the economy. The most significant risk for Guinea-Bissau, however, would be a severe drying up o f foreign aid over the medium term. 25. Guinea-Bissau i s debt distressed. At end-2008, Guinea-Bissau’s stock o f external debt amounted to US$1.4 billion, o f which US$392 million were arrears. The external debt to GDP ratio has fallen over the last five years from 475 percent in 2003 to about 330 percent in 2008, reflecting mainly a low rate o f new debt accumulation against nominal GDP growth and favorable currency movements related to the FCFA’s peg to the euro. The cash flow impact o f the large debt on the budget has been softened by the interim r e l i e f from the IMF, IDA and the African Development Bank (AfDB), but the country has continued to accumulate external arrears on i t s bilateral debt. The huge debt overhang remains a large risk on the path to fiscal stabilization and it clouds prospects for a resumption o f private investment; by contrast, a resolution o f the debt problem would enhance the credibility o f the Authorities’ economic management. The latest Debt Sustainability Analysis (DSA)’ points to a situation o f debt distress that could only deepen with borrowing on non-concessional terms, exchange rate depreciation and slower growth o f exports. 26. Chances of a more permanent solution to debt distress would be boosted by the country reaching the HIPC Completion Point. Since reaching the Decision Point under the HIPC initiative in December 2000, the Authorities have made good progress on reaching Completion Point triggers and, with the approval o f the EPCA program, have committed to maintaining a satisfactory macroeconomic performance. A good performance under the EPCA program would place the Authorities in a position to request support under the IMF’s PRGF, which, if performance i s again satisfactory, would pave the way for reaching the Completion Point in 2010. 11. COUNTRY DEVELOPMENT PROGRAM AND ISSUES A. COUNTRY PRIORITIES AND AGENDA 1. PRSP OBJECTIVES 27. Guinea-Bissau adopted a National Poverty Reduction Strategy Paper (Documento de Estratkgia Nacionalpara a Redu@o da P o b r e z e D E N A R P ) in September 2006. The preparation o f the first PRSP was initiated in 2001, but i t s completion was repeatedly delayed due to instability and frequent changes o f governments. While the implementation o f the PRSP was initially designed to cover the period 2006-2008, it will now cover the period 2007-2010. The DENARP i s based on the 2025 Vision, known as “Djitu ten”, developed through a participatory process and offering a national long-term perspective. The PRSP was presented to development partners at the November 2006 Geneva Round-table. The long-term vision adopted in the strategy i s “...to make Guinea-Bissau: (i) a well governed country with institutions for balance and control o f powers, a decentralized administration that values merit; (ii) a country with an environment favorable to sustainable economic growth, good distribution o f income and integrated into the sub region; (iii) a country with well-trained human resources adapted to its needs; (iv) a country with self-sufficiency in food and an exporter o f grains in the sub region; (v) a country with rational management o f i t s natural resources and greater environmental awareness among i t s citizens; (vi) a peaceful country with diversity, that values i t s cultural patrimony and ensures equality o f opportunities between sexes; (vii) a strong country, economically independent, with Joint Debt SustainabilityAnalysis, August 2007. An update i s in preparation. 8 good infrastructures; (viii) a country with a democratic system that stimulates participation by i t s citizens in basic decisions and achievement o f the r u l e of law.” The DENARP covers four pillars: (i) strengthening governance, modernizing the public administration and ensuring macro-economic stability, (ii)promoting economic growth and job creation, (iii) increasing access to basic social services and social infrastructure, and (iv) improving the living condition o f vulnerable groups. 28. The implementation o f the PRSP has faced multiple challenges to date. These include frequent Government turnover, weak governance and l o w economic growth. The weakness o f the National Statistics Office has also made effective monitoring o f PRSP implementation more challenging. The Government i s currently finalizing i t s first implementation progress report. 2. THE CURRENTGOVERNMENT’S PROGRAM 29. The new Government Program o f February 2009, adopted by the National Assembly in March 2009, i s ambitious. The program i s consistent with the PRSP and aims to accelerate reforms around five major objectives, namely: a) Promoting good governance, consolidating democracy and the rule o f law; b) Ensuringpolitical stability and social cohesion; c) Reforming and modernizing the state apparatus; d) Ensuring quick and sustainable economic growth, and e) Restoring a positive internal and external reputation for the State. 30. These objectives are grouped under two programmatic axes: (i) good governance, competent and transparent management, and the fight against impunity and corruption; (ii) economy and development. Each o f these axes identifies a l i s t o f principal areas for attention and priority actions in each area. The Program also outlines the guiding principles o f accountability and responsibility, merit-based promotions, sound use o f public funds and sanctions for corruption and crime. Social services, including education, health and social solidarity are identified as important priorities. 3. COUNTRYSTAKEHOLDERS’ PERSPECTIVES 3 1. Revitalizing the agricultural sector and helping improve the education system are seen by various stakeholder groups as top priorities. The Bank and the international community are highly encouraged to provide support in these areas. These views were strongly expressed during consultations with stakeholders, whether during village-level visits in January 2009 or formal I S N consultations in April 2009. Concrete measures to reduce poverty and to improve people’s lives are seen as essential to avoid social conflict. The private sector i s seen as vital for creating economic opportunities and improving livelihoods, and civil society organizations stressed the need to foster social accountability in order to increase the effectiveness o f public institutions. B. K E Y DEVELOPMENT CHALLENGES AND CROSS-CUTTING ISSUES DEVELOPMENT 1. KEY CHALLENGES (a) The Immediate Challenge of Fiscal Stabilization 32. Progress towards macro-economic stabilization has been uneven since the 1998-99 conflict, complicated by a difficult domestic and international context. Since 1997, Guinea-Bissau has been part o f the regional West African Economic and Monetary Union, with a common currency and a peg to the euro that have delivered monetary and exchange rate stability over the last decade. Thus, the main macroeconomic policy instrument i s fiscal policy, and, accordingly, difficulties in achieving fiscal stabilization have been central to macroeconomic instability in Guinea-Bissau, along with domestic 9 political developments and external economic shocks. Attempts at stabilization in the early years of the decade faltered in the wake of political disturbances and weaknesses in fiscal management. 33. Since early 2007, however, successive governments have reaffirmed the importance o f bringing the budget under control to foster stability and improve the functioning of the State. Efforts have been made to mobilize revenues, seek additional donor assistance, and control spending, along with structural reforms in public financial management, in the areas o f expenditure control, cash management, revenue collection, and administrative capacity in the Ministry o f Finance. The Authorities’ commitment to their program under the EPCA augurs well for an eventual transition towards a Fund- supported PRGF. 34. A lasting solution to Guinea-Bissau’s fiscal problems will require decisive progress on a number o f challenging fronts, including control of the wage bill. The public sector wage bill stood at 11 percent o f GDP and 65 percent o f domestic revenues in 2008 (down from 82 percent in 2007). The large size o f the wage bill limits fiscal space to finance critical non-wage expenditures and to absorb revenue shocks. Shortfalls in domestic revenues or donor support have led to episodes o f accumulation o f wage arrears, threatening social peace. Efforts are being made to improve control o f the wage bill, including by freezing wages-a strategy that i s not sustainable in the medium term-and by auditing the payroll, as well as more ambitious plans for public administration reforms supported by the European Union. The Government has expressed i t s commitment to these actions. 35. A large share o f the wage bill goes to security forces, but achieving a downsizing o f the security forces will require difficult internal agreements. The UN and EU have helped the Authorities to develop a security sector reform program and the EU i s ready with financing for retrenchment and restructuring o f the security forces. There i s a broad consensus among observers that, unless the issue i s addressed, the security sector will remain a critical source o f political instability. However, the ability o f individual governments to act will remain constrained until an internal agreement can be reached with the military and other forces on the need for reform. As another illustration o f the country’s entrapment in a low equilibrium, security sector reform i t s e l f will be difficult to initiate, bring to completion and sustain in an environment o f low growth. (3) Fostering Accountability and Transparencyfor Good Governance 36. Country stakeholders see improving governance as a sine qua non for addressing the development needs o f the population. This was a clear finding o f the I S N consultations held in April 2009 and was true o f governance in relation to all three branches o f Government (executive, legislature and judiciary). The reform o f the public administration, anti-corruption measures, improving the capacity o f institutions and strengthening the rule o f law were mentioned as fundamental reforms to promote poverty reduction. Further, the reform o f the security sector i s seen as a prerequisite for political stability and therefore for prosperity in the country. There i s uncertainty about the willingness o f the military and other security forces to reform and the unclear role o f the military in society-in particular since March- i s seen as underminingthe functioning o f institutions because o f the incidents o f violence perpetrated by different armed groups, and structurally because o f the opportunity costs o f the vast fiscal resources allocated to the military. 37. Guinea-Bissau’s governance profile i s mixed. On the one hand, international governance indicators point to a weak institutional system with a poor quality o f public administration, and with high indices o f perception o f corruption in cross-country surveys. On the other hand, prospects for some success in improving governance appear better than they have been in years. Data on “voice and accountability” and “political stability and absence o f violence” in 1998, 2003 and 2007 surveys have 10 trended upward since the advent o f democracy, notwithstanding the recurrent bouts o f instability and violence. Some improvements, though less resounding, were also noted in “government effectiveness.” 38. Reforming the public financial management system remains a priority to foster accountability and transparency in the use o f public resources. Guinea-Bissau’s P F M system i s weak. According to a recent draft PEFA report based on 2006-07 data, Guinea-Bissau r a t e s - o n scales o f A (strong) to D (weak)-at a D level on all but two o f 25 applicable standard indicators o f public financial management performance, indicating deep-seated and broad weaknesses in budget credibility, comprehensiveness, preparation, execution, reporting, accounting, control, and transparency. Conflict and political instability have taken a heavy toll on the critical investments in the human and physical resources needed to operate the budget system and implement the kind o f permanent reform agenda that i s needed for a sustained improvement in budget performance and accountability. The Government has expressed i t s commitment to advancing on the P F M agenda. 39. There has been progress over 2007-08 in improving public financial management. Following a comprehensive audit o f all revenue sources, sectoral ministries’ administrative revenues are now accounted in the general budget and sectoral ministries’ revenue accounts in commercial banks have been closed. Significant efforts have been made to move towards a single treasury account at the Central Bank by closing or transferring all sectoral ministries’ non-project spending accounts at the BCEAO. Treasury management has been strengthened through the establishment o f an independent treasury committee. The Treasury i s now in a position to produce a monthly ledger, while the Economic Forecasting department produces a monthly synthetic government financial operations table. The recourse to simplified and emergency (extra-budgetary) spending procedures was tightened, and the Ministry o f Finance has ensured that remaining instances were regularized within a two-day period. Progress has also been made in implementing the action plan to reform the public procurement system in six ministries (education, health, agriculture, infrastructure, finance and defense). 40. One o f the main issues i s that Guinea-Bissau i s still transitioning from the P F M system inherited from colonial times toward the WAEMU compact to which the country committed itself upon joining the Union in 1997. This compact i s a legal, institutional, administrative, and policy agenda that will require significant efforts to put in law and practice. The legal framework remains to be fully formalized into national law, a framework that includes WAEMU-mandated budget classification, planning and execution procedures, accounting norms and procedures, reporting mechanisms, as well as internal and external controls. In order to be fully established in law and practice, the implementation o f this framework requires the adoption o f Organic Laws, the adoption o f implementing rules and regulations (decrees) specifying procedures and the legal roles and obligations o f budget managers and accountants, the development o f operational tools and procedures manuals, and intensive training programs. 41. The government has also opted for a more systematic approach to deal with the various shortcomings in its P F M system. The strategy i s based on the introduction o f an integrated ublic financial management system upon which operational and procedural reforms can be tagged.‘ The implementation strategy for this system would allow Guinea-Bissau t o leapfrog on a significant package o f reforms to: (i)develop and integrate budget preparation and execution computer systems; (ii) make operational the WAEMU-mandated budget classification standards that were recently adopted; (iii) develop consistent reporting tools for monitoring budget execution and, at a subsequent stage, treasury operations; and (iv) effect procedural reforms for budget managers that ensure compliance with legal and P F M regulation standards. 6 T h e system chosen by the authorities i s based on the integrated financial management system software developed in CBte d’Ivoire. 11 42. During 2009, the government intends to continue to improve revenue collection and expenditure management and develop a new comprehensive medium-term reform agenda for P F M reforms. Implementation o f the Automated System for Customs Data (ASYCUDA) and the launch o f pre-shipment inspection will help improve customs control and valuation. The taxpayer database i s being updated. A new payroll and human resources management system will allow improved controls over wage costs. Revision o f the legal framework to adjust entitlement rates i s also expected to be enacted. Other activities include the publication and dissemination o f quarterly budget reports to Parliament, civil society and donors. In addition, a recently launched PEMFAR, will provide: (i) a updated diagnostic analysis o f strengths and weaknesses in the country’s public financial management system and practices; (ii)inputs for the design and preparation o f the next phase o f the PFM reform strategy; and (iii) a rating o f all key components o f the PFM system against international benchmarks, which can be used to judge future progress on PFM reforms. Box 1. The EU Public Administration Reform Assistance Project The PARAP i s a €6.5 million project that i s expected to last three years. The EU has indicated i t s interest in expanding i t s support beyond this period for at least an additional three years. The project presents two major axes o f activities. The f i r s t i s to support public administration reform in the short term to identify the necessary fiscal space to address shortcomings in the area o f individual pay scales. The second aspect i s to begin the process o f administrative reform more broadly, through the targeted restructuring o f the two key ministries: Finance and Public Administration and Labor, which are responsible for public resource management. With regard to the first objective, the program i s dedicated to the effective development o f the private sector to accommodate and absorb excess public employees. With regard to the second aspect o f the reform-the restructuring o f public administration, and the design and adoption o f a code o f conduct for public administration-the support will go towards a legislative review aimed at unifying and modernizing the legal and regulatory framework regulating the civil service and public administration in general; undertaking pay reform; designing and implementing a redundancy scheme for the public sector; developing the training function within the public sector; simplifying regulation and procedures; and mainstreaming gender in the public sector. The program will also support the demand side o f public administration reform, by supporting civil society; working towards the development o f a well functioning safety net system that i s able to replace the use of the civil service for this purpose; and addressing other key issues in the area o f governance reform, such as developing an alternative dispute resolution scheme, strengthening the external audit function, and drafting laws to support people with handicaps. 43. The public sector exhibits many o f the problems o f low income, fragile states, and reforming it i s a long-term agenda. Overall, public service i s ineffective. Absenteeism i s widespread and employee motivation i s weak. The civil service has low pay and low skills (pay rates at the middle and senior levels are low compared to the private sector); there are not enough professional and managerial posts; and too many resources are expended on lower grade staff. Political interference in the civil service i s widespread and cronyism i s often the basis for hiring and promotion. Little progress has been so far made to address the public sector’s complex human resource challenge. Reforming the public sector i s a long-term agenda. International experience shows that public sector reforms take years, and the results appear with a significant time lag. The EU, together with the AfDB, UN and bilateral donor^,^ are making considerable efforts to reforming the public administration. The EU Program to support UNDP, UNOGBIS, UNPBC, Portugal, France and Brazil 12 Public Administration Reform (PARAP) i s piloting a variety o f activities in two Ministries. Bank support to the PARAP team will include analytical and advisory support under the recently launched PEMFAR. 44. Guinea-Bissau’s role in global drug trafficking has emerged as one o f the most disturbing developments in recent years.’ The country has reportedly become a major transit point for cocaine from South America t o European markets. The United Nations Office on Drugs and Crime (UNODC) estimates that at least 50 tons o f cocaine (a European street value o f US$2 billion) from the Andean countries transit through West Africa every year: the drug i s shipped from South America to various entry platforms in West Africa, notably Guinea-Bissau and Ghana. Economic impacts include pervasive money laundering, and increased economic and political risks in the eyes o f potential investors, hampering the development o f key sectors such as tourism. The traffic can lead t o higher corruption, corrosion of the rule o f law and political destabilization as a result o f competition for access to illicit revenues. If left unchecked, drug trafficking could ultimately result in a gradual slide to a narco-state with huge costs to the country and the potential for significant spill-over effects on the sub-region and to Guinea-Bissau’s international partners. 45. The government has started to take action with UNODC support. The government i s working in close cooperation with the Economic Community o f West African States (ECOWAS), the European Union, South Africa, Brazil and U S enforcement agencies. Implementation o f ECOWAS’s Regional Action Plan to Address the Growing Problem o f Illicit Drug Trafficking, Organized Crime and Drug Abuse-adopted in October 2008 in Praia-is considered a priority. A UNODC-led project i s supporting efforts to strengthen law enforcement capacity through the judiciary police with logistical and training assistance, and to build up a team o f special prosecutors to work in the counter-narcotics area. (e) Accelerating Growth: Improving Productivity in Agriculture 46. While Guinea-Bissau i s blessed with fertile soil and high rainfall, agriculture i s severely handicapped. Agriculture accounts for about 56 percent o f GDP, 82 percent o f which i s subsistence food production which employs over 80 percent o f the workforce. The sector suffers from weak institutional capacity, l o w productivity, and weak research and extension support. Connecting production to export markets i s further constrained by inadequate rural roads and a barely functioning port. These constraints undermine the country’s capacity to tap the sector’s large potential to promote more growth, exports, food security, and poverty reduction. 47. Cashew production accounts for 98 percent o f export revenue and 17 percent o f government revenues, and i s used by small producers to purchase rice. Cashew i s grown mostly by smallholders, with 80 percent o f the crop produced on small farms. Other export cash crops include peanuts and coconuts. The shift in investment to cash crops has paid off, with profits being used to purchase rice and other consumption goods. Consumption needs for rice have also been filled by barter transactions between rice and raw cashew nuts since about 1984. Today between 50 percent and 70 percent o f all imported rice i s likely t o be used for bartering purposes. While there are upsides to the bartering system, since it helps address the primary needs o f households particularly in the early parts o f the cashew harvest season, it often means that money i s not entering the value chain at this level, and small farmers do not get to benefit from the full value o f the cashew they produce. In addition, as many traditional rice fields (bolanhas) had been abandoned in recent years in favor o f cashew production, rice fields in good condition have become scarce. Food .crops such as rice, sorghum, maize, plantains and cassava remain largely subsistence farming. Rice i s the main staple food, accounting for 37 percent o f consumption value and 40 percent o f daily caloric intake o f the average household. It i s grown both in For more extensive details, see: UNODC: Cocaine Trafficking in West Africa: The threat to stability and development (with special reference to Guinea-Bissau), December 2007. 13 the swampy coastal areas and in savannah areas, mostly without irrigation. The fishing sector i s underdeveloped, but has great potential as a source o f export and domestic revenues, largely from the sale o f fishing rights. 48. The government’s 2008 food crisis response, contained in an Emergency Plan for 2008-10 agricultural seasons, should help Guinea-Bissau mitigate the impact of higher food prices and lower cashew nuts prices. Though cashew nuts and cereals prices are falling, the latter remain elevated, albeit at a much lower level than 2008. The challenge i s also an opportunity for Guinea-Bissau, which could expand i t s production o f rice and other food crops. The Emergency Plan aims at increasing domestic production o f staple food and ensuring its immediate availability, access and stability to ensure food security in the country. The Plan includes provision o f seeds, production tools, purchase o f pesticides stocks, provision o f fertilizers, re-launching o f seed production, introduction o f an early warning system, and support to improved monitoring and evaluation systems. The government has been successful in mobilizing donor funding for this plan, including a US$5 million grant from the World Bank under the Global Food Crisis Response Program, and other initiatives supported by the FAO, AfDB, EU, IFAD, and WFP. (4 Accelerating Growth: Addressing the Collapse o f Basic Infiastructure Services 49. Electricity production and distribution has virtually collapsed since 2000. Only around 20 percent o f the population has access to public electricity, primarily in Bissau, and only 70 percent o f the time. Bissau has generation capacity o f 5.5 M W , down from 25 M W in 2000, but i s currently operating only 1.5 MW. The electricity and water utility, EAGB, i s caught in a vicious circle whereby widespread power cuts and poor management have led to high levels o f energy losses, theft, and l o w collection. As a result, EAGB does not have sufficient cash to pay for a minimum volume o f fuel, let alone maintenance o f i t s existing generation and distribution infrastructure. Only one o f the five available generators i s operational, leading to more power cuts and dwindling revenue. One major medium-term goal for the substantial improvement o f the situation i s the expected connection o f Guinea-Bissau to the regional grid powered by hydro-generation capacity from the OMVG electric power development program by 2014. 50. The other most pressing infrastructure challenge i s the port o f Bissau. The Bissau port i s the only major functioning port in the country and the gateway for 85 percent o f all exports and 90 percent o f all imports. If fully effective and better connected to regional road infrastructure, it could serve as a trading hub and entry-point for the sub-region. An attempt to concession it to a private operator Tertir in 1991 was unsuccessful and in 1999 it reverted to the AdministraqZo dos Portos da Guink-Bissau (APGB). Originally constructed to move 5,000 containers, it i s now moving 20,000 with considerable delays. I t s operations suffer from a lack o f capacity, insufficient depth o f port and approaches, lack o f navigation instruments, and obsolete and inadequate container equipment. This has constrained activity and revenues, which in turn has led to less maintenance. The costs o f t h i s vicious cycle on other sectors o f the economy are substantial-for example, a study o f the cashew sector pointed out that the high direct and indirect costs o f port operations act as the largest tax on the prices farmers obtain for their products. It has also increased the cost o f basic imports, especially fuel, which have to be transported from the port o f Dakar. 51. Other infrastructure needs to be addressed include water, roads and telecoms. There i s a major need for water provision in urban areas. While the primary road network i s in relatively good shape, most secondary dirt roads are unusable during rainy season, hampering transport o f agricultural production and economic activity, and linkages to sub-regional networks need to be strengthened. While telecommunications has experienced the greatest growth in recent years, the main challenge i s to consolidate an enabling regulatory framework for further growth and competition. 14 52. I n order to strengthen private investment in these and other areas, it will be important to strengthen the business climate, reduce red tape and strengthen contract enforcement. Guinea- Bissau ranked 179 out o f 18 1 countries, ahead only o f the Central African Republic and the Democratic Republic o f Congo, in the 2009 Doing Business report. Some progress, however, has been registered over the past few years under the impetus o f the IDA Private Sector Rehabilitation and Development Project. Positive outcomes include success in telecoms reform (with access up by a factor o f about 50), privatization, legal reform, and the rehabilitation o f 13 private enterprises on a cost-sharing basis. Nonetheless important issues remain to be solved. In particular, new laws and regulations are needed to improve the business climate along with a rationalization o f predatory administrative practices. (e) Accelerating Growth: Developing Extractive Industries 53. Significant deposits o f bauxite and phosphates were discovered in Guinea-Bissau in the 1970s and more recently there have been offshore discoveries o f heavy crude These resources were never fully exploited due to the poor quality o f the infrastructure, l o w international prices, and political instability. More recently, long-term exploration leases have been granted in bauxite and phosphate areas. The government i s in the process o f making a decision on the development a phosphate mine, expected to be the largest investment in the history o f Guinea-Bissau. Development o f these mines could be a significant source o f growth, tax revenue and export earnings. In the case o f petroleum, while economically exploitable deposits have yet to be confirmed, several companies are currently active in the field. In October 2008, the Government requested technical assistance from the Bank in support o f setting up an appropriate legal framework for mining and oil, with special training for c i v i l servants on the effective implementation o f the Extractive Industries Transparency Initiative (EITI). 54. Improving the legal and regulatory framework for extractive industries i s a major challenge for the Government. The main Petroleum L a w was introduced in 1982, with only minor revisions in 1985 and 2006. A Mining L a w introduced in 2000 suffers from a number o f shortcomings, namely with respect to royalties and local community development. An Environmental L a w i s now before the National Assembly, and a new law and regulations based on an Environmental Impact Assessment (EIA) were recently passed. A new institution in charge o f implementing EMS,Celula de AvaliqZo de Impacte Ambiental (CAIA), has been set up with IDA support and has issued i t s first terms o f reference to the potential developer o f the phosphate mine. &I Addressing Human Development Constraints: Improving Basic Social Services 55. Guinea-Bissau ranks 171 out of 179 countries on the 2008 UNDP Development Index, and i s not likely to reach any o f the MDGs by 2015 without significant donor support. In education, primary enrollment ratios have been increasing but remain well below the average for low-income countries. Moreover, access i s uneven across geographical areas and socio-economic groups, while quality i s weak, with l o w completion rates and high rates o f functional illiteracy. In health, life expectancy at birth i s 46 years, which i s 11 years below the average for low-income countries, largely due to high infant and child mortality rates. Immunization rates have fluctuated in recent years, and while strong progress has been made in fighting malaria, this remains the main cause o f mortality and morbidity. At the same time, Guinea-Bissau has not been able to prevent an increase in HIV prevalence to rates that greatly exceed those o f neighboring countries. While Guinea-Bissau can access vertical programs to address these issues, it will also need to strengthen i t s health system management in line with the Second National Health Development Plan, and improve health sector information management, financial management and human resource management, while upgrading monitoring o f health centers so as to be able to deliver basic health packages. Strengthening Guinea-Bissau’s human resource base Extensive details on these areas will become available in the forthcoming 2009 Diagnostic Trade Integration Study. 15 therefore constitutes a key challenge and i s a top priority in the DENARP and the new Government Program. 2. CROSS-CUTTINGISSUES (a) Weak individual, Organizational and Institutional Capacity 56. Capacity constraints, at the individual, organizational and institutional levels, are seriously hampering public management, government service delivery and economic activities in general. Three factors aggravate these constraints: (i) a weak education system that fails to graduate qualified personnel in sufficient numbers; (ii) the large number o f qualified persons migrating to Europe or neighboring countries; and (iii) an internal brain-drain in which the most capable public sector staff leave for more attractive conditions, especially with international agencies operating in the country. In most cases, there i s little, if any, technical transfer and build up o f local capacity from such arrangements. (22, Gender 57. Women in Guinea-Bissau are still in disadvantage as compared to men, in many areas. Women are in risk o f severe health and other problems, including HIV/AIDS due to harmful traditional practices. The incidence o f poverty i s even across gender but the decomposition by age group varies. Widows and divorced women are particularly prone to poverty. According to the 2006 Guinea-Bissau Integrated Poverty and Social Assessment (IPSA)," the overall poverty rate o f 66 percent masks significant differences in the distribution o f poverty by gender and age group: Whereas women below 3 1 and above 65 years are poorer compared to men in the same age range, women between 3 1 and 65 tend to be better off, due to their activity in the informal sector, including the processing o f cashew nuts, with at times more reliable incomes than the male-dominated public sector. Looking ahead, it will be important to support increased participation by women in voice and accountability issues and equitable access to basic services and opportunities. (c) Environment 58. Guinea-Bissau i s highly dependent on its natural resources for survival and economic development, yet these resources are increasingly threatened. Agriculture, forestry, and fisheries are the key source o f current and future economic growth, but are endangered by deforestation, soil degradation, and fisheries depletion. Forest cover i s estimated to have declined by 30,000-60,000 hectares per year over the last 10 years. Water quality i s deteriorating due to the loss o f forest catchments, increased salination in coastal areas, and overfishing. If adequate safeguards are not in place and respected, mining could potentially have devastating effects on the environment. The country has not yet been exposed to any measurable effects o f climate change or to natural disasters in the past decades. Nonetheless, looking ahead, it will be important to ensure that environmental impacts are duly considered on major investments, such as in mining, as well as in areas with potential cumulative impacts such as extending the area under agricultural production. IDA resources permitting, it will also be important to strengthen the management o f fish resources. loWorld Bank (AFTP4): IntegratedPoverty and Social Assessment. Transition from Post-conflict to Long-Term Development: Policy Considerations for ReducingPoverty. (Vol. 1 Main Report), May 2006. 16 111. THE BANK’S INTERIM ASSISTANCE STRATEGY A. IMPLEMENTATION OF THE PREVIOUS CAS 59. The last CAS for Guinea-Bissau was approved in May 1997. The 1997 CAS focused on three pillars: (1) Sustainable macroeconomic growth; (2) Private sector development; and (3) Poverty alleviation and social development. One year after i t s preparation, violent internal conflict shook the country and rendered the proposed strategy inapplicable. Most projects foreseen under the CAS were not realized as planned, or were implemented with significant delays. In light o f the context o f violence and subsequent political instability, no CAS Progress Report, CAS Completion Report or IEG Country Assistance Evaluation was prepared. Moreover, the rapidly changing post-conflict environment and repeated changes in Government, as well as repeated delays in the preparation o f the PRSP, complicated the development o f subsequent strategic documents. For the same reasons, a formal client survey has not been carried out for Guinea-Bissau in recent years, although such a survey i s planned as part o f the preparation o f a full CAS for Guinea-Bissau in 18 months’ time. This Interim Strategy Note therefore represents the Bank’s f i r s t strategic framework document for Guinea-Bissau-not including the Joint Staff Assessment o f Guinea-Bissau’s PRSP-since 1997. 60. The post-conflict context hampered implementation, yet four o f the last seven‘ projects evaluated by the Internal Evaluation Group (IEG) were rated Satisfactory o r Moderately Satisfactory. These included Economic Management Technical Assistance (TA), Basic Education, Infrastructure Rehabilitation, and Energy projects. In spite o f these ratings, the latter three were considered unlikely or uncertain to be sustainable, though Institutional Development was deemed substantial. Support for Transport and Urban Infrastructure, Economic Rehabilitation and Recovery, and National Health Development were rated moderately or highly unsatisfactory, with sustainability rated unlikely and negligible institutional development or M&E. Overall, Bank and Borrower performance mirrored the Development Objective rating. Three o f the seven projects had a net disconnect relative to the Implementation Completion Report (ICR) rating. 1. PORTFOLIOMANAGEMENT 61. As of March 31, 2009, 29 I D A credits and grants with a total commitment o f US$324.9 million have been approved for Guinea-Bissau. The most important sectors in terms o f financing are: TransportiInfrastructure/Energy (7 operations for US$113.8 million); Budget support (3 operations for US$63.4 million); the Social sectors including Health and Education (7 operations for US$60.3 million); Private Sector Development (3 operations for US$4 1 million); and Economic Management TA operations (3 operations for US$33.7 million). Rural Development, including extractive industries, agriculture and natural resources management benefited from US$26.6 million in two operations. FROM IcRS AND IEG EVALUATIONS 2. LESSONS 62. ICRs and I E G evaluations o f the seven projects completed since 1997 indicate mixed results with regard to project outcomes. They provide some u s e h l lessons o f experience to guide new operations under the ISN: > Project design was often too complex and not appropriate to country circumstances. IEG recommends simpler and more modest projects better adapted to country/sector context; > Changes in the political and institutional environment were not sufficiently reflected in project design. The supervision team and management should consider more frequent re-assessment and restructuring when necessary; 17 > Risk assessments and mitigation measures were often inadequate. For example, the inability o f the government to fulfill i t s counterpart funding commitments hampered project progress. IEG recommends that more systematic risk assessments and appropriate risk mitigation measures be ’ taken, related to donor and/or government commitment. > The involvement o f NGOs in the education sector was a success. Teams should explore their potential involvement in other sectors; and > Capacity gains for Project Implementation Unit (PW) staff are lost if no provisions are taken to transfer them into local institutions. B. THECURRENT IDA AND TRUST FUND PORTFOLIO 63. The current I D A Portfolio comprises four operations representing total commitments of U S 5 4 million. The undisbursed balance was US$13.8 million as o f March 31, 2009. This includes the Private Sector Rehabilitation Project (US$26 million); the Emergency Public Service Delivery Project (US$10 million), the Coastal and Biodiversity Management Project (US$3 million) and the Multi-Sector Infrastructure Rehabilitation Project (US$15 million). The IDA portfolio includes one actual problem project, and two potential problem projects-which i s not unexpected taking into consideration the difficult country circumstances.” 64. The portfolio also benefits from a number o f Trust Funds that complement the limited IDA- 15 allocation. The Emergency Food Security Support Project with US$5 million from the Food Price Crisis Response Trust Fund (FPCR TF) supports agricultural production and school feedingfood-for- work initiatives, in collaboration with the World Food Programme and the Food and Agriculture Organization o f the UN. During FY09, the State and Peace Building Fund (SPF) approved TA for Economic Governance and PFM, support to the Second National Health Development Plan, and support for Participatory Rural Development. The Global Environment Facility (GEF) has been co-financing the Coastal and Biodiversity Management Project since 2005 with US$4.8 million. 65. I D A i s also providing interim debt relief to Guinea-Bissau as part o f the Initiative for the Heavily Indebted Poor Countries (HIPC). In January 2008, the Board o f Directors approved the extension o f interim debt r e l i e f under the HIPC in an amount equivalent to 50 percent (in N P V terms) o f total IDA debt r e l i e f agreed for Guinea-Bissau. The extended interim debt r e l i e f will free up more than $7 million in government resources annually from debt servicing through June 201 1. 66. I n addition to the lending program, the Bank i s undertaking significant analytical work. A 2008 Social Sector Review provides an inventory and analysis o f the key challenges in the social sectors, while a PER Update in 2007 examined options for improving the fiscal outlook through downsizing the civil service. An Investment Climate Assessment and a Diagnostic Integrated Trade Study are under way and will facilitate strategic decision-making on priorities to help boost economic growth. An Education Country Status Report i s also under way and will inform an EFA-FTI funding proposal. Finally, a PEMFAR (FY 10) under preparation will help to define priorities in economic governance, including for proposed budget support in FY 10. The Bank considers a project to be an “actual problem project”, if either Implementation Performance (IP) or progress towards a project’s Development Objectives (DO) i s rated less than moderately satisfactory. Projects are considered “potential problem projects” (PPP), when three or more risk flags are triggered. In the case o f Guinea-Bissau, all projects already carry two country- risk flags, which are not based on individual project performance. Any other “risk flag” on top o f these will hence make the project a “potential problem project”. In the case of the two PPP in the Guinea-Bissauportfolio, these flags are related in one case to an effectiveness delay, and the other case to procurement issues. Nonetheless progress with respect to IP and DO ratings remain moderately satisfactory for both PPP. 18 c. PROPOSED INTERIM ASSISTANCESTRATEGY - I D A AND TRUST FUND RESOURCES 67. The indicative IDA-15 envelope for Guinea-Bissau o f SDRlZ million (approximately US$19 million) over FY09-FY11 does not allow for a program that i s commensurate with the needs of the country. Guinea-Bissau’s I D A - 15 allocation i s 16 percent lower than i t s IDA-14 envelope, reflecting relatively weak country performance. The IDA-15 envelope comprises a firm SDR4 million for FY09 and an indicative total o f SDR8 million over FY10-11, depending inter alia on Guinea-Bissau’s performance relative t o other IDA countries over the next two years. The FY09 IDA allocation, which i s equivalent to slightly over US$6 million, has been supplemented this fiscal year by US$13.7m in trust funds, notably from the SPF and the FPCR TF. A US$4 million proposal from the EU and a US$10 million proposal from the Education For All-Fast Track Initiative (EFA-FTI) Transition Funds, are s t i l l in the pipeline. Even with these important additional resources, the program lacks the resources for the transformative changes that are needed for Guinea-Bissau to escape its l o w level equilibriumtrap. 68. The objective of the I S N i s therefore to carry out a core transitional program as the country works towards H I P C completion, while laying the foundations for a High Impact Program in the medium term. To t h i s end, the Bank program will focus on two strategic pillars during the I S N period: 1) Strengthening Economic Management and Laying the Foundations for Improvements in the Productive Sectors, and 2) Increasing Access to Basic Services, Especially in Rural Areas. A cross-cutting theme will be to strengthen institutional capacity for more effective governance (leadership, management o f public financial resources and public dialogue, EITI++) and project implementation. In advancing this program, the Bank will seek to build stronger partnerships with other traditional and non-traditional donor partners in Guinea-Bissau. During the ISN period, the team will also develop a “High Impact Program” designed to help the country break out o f the dynamic o f vicious circles and escape its l o w equilibrium trap. This alternative scenario will be developed through a focused approach in key sectors and serve as the foundation for the next CAS. The preparation o f such a High Impact Program (see below) will include leveraging the Bank’s convening power in order to build partnerships, and mobilizing resources for such an approach will be an important non-financing activity during the I S N period. The Interim Strategy covers the 24 months from January 2009 through December 2010. 69. The Bank’s support under the I S N will help the country progress towards achieving the H I P C Completion Point, although other donors will play a critical role in this regard. In particular, various outstanding HIPC Completion Point triggers relate to progress under the IMF program. Nevertheless, the Bank’s contribution will be important, particularly with respect to triggers related to governance and some o f the MDGs. PILLAR 1 MANAGEMENT AND LAYING : STRENGTHENING ECONOMIC THE FOUNDATIONS FOR IMPROVEMENTS IN THE PRODUCTIVE SECTORS (a) Financing Activities 70. The Bank program will provide a mix of financing to assist the Government in strengthening economic management and laying the foundations for improvements in the productive sectors. In particular, the program will help to strengthen economic management via a programmatic series o f two IDA-financed Economic Governance Reform Grants (two DPOs o f US$8 million equivalent in FY09 and US$4 million equivalent in FY 10, respectively) and an ongoing SPF grant for TA in Economic Management (US$1.7 million). In addition, the program will help to lay the foundations for improvements in the productive sectors via the ongoing IDA-funded Multi-Sector Infrastructure RehabiZitation Project (MIRP, US$15 million), which could receive US$2 million equivalent in additional financing in FY 11 to continue addressing the most critical infrastructure needs in Bissau and paving the way for Guinea-Bissau to benefit from the OMVG regional electricity generation scheme and related interconnections to the regional grid, by around 2014. Moreover, the Food Price 19 Crisis Response Trust Funded and EU-funded Emergency Food Security Support Project includes US$3.5 million to improve rural feeder roads and lay the foundations for increased rice production through the rehabilitation of rice fields and the distribution of agricultural inputs. The ongoing Coastal and Biodiversity Management Project (CBMP) aims to strengthen management o f the fishery sector and strengthen natural resource management. This includes helping to establishing institutional structures, standards and procedures for mandatory environmental and social impact assessments in the mining sector, amongst others. If a strengthening of the country’s performance results in additional IDA funds becoming available, Guinea-Bissau will also be included in the West Africa Regional Fisheries Project. (a) Non-Financing Activities 71. The Bank’s financing to support Pillar 1 will be complemented by a range o f analytical work and technical assistance. In particular, the Bank i s completing a Diagnostic Trade Integration Study that will provide an in-depth analysis of potential sources of export revenue. Follow-up steps include the establishment, from DTIS trust fund resources, of an organizational entity which will be tasked with implementingthe recommendations o f the study, and will serve as a platform of dialogue and follow-up of activities with country stakeholders and donors. An ongoing Investment Climate Policy Note and Regional Multi-sector Regulatory Study (that analyzes ways to strengthen the telecommunication sector from a regional perspective) will inform future strategies to create an enabling environment for economic growth. A Public Expenditure Management and Financial Accountability Review (PEMFAR) i s under way to provide the analytical underpinnings for the government’s medium- term PFM reform agenda and i t s public administration. In FY 10, preparations will begin for an FY 11 Country Economic Memorandum on a Multi-Sector High Impact Program. This core study will focus on Guinea-Bissau’s economic potential, challenges and risks in key sectors in a coordinated way so as to set the stage for a High Impact Program that can transform the country and help it to break out of its low level equilibrium, with substantive support from IDA-16 resources. The key sectors that are foreseen include agriculture, transport (roads and the port) and energy (including regional dimensions). In addition, the Bank will support the Government in initiating EITI++ in the mining sector, with possible support from a Global Expert Team. Related trust funds will finance technical assistance to support the Authorities in managing extractive industry revenues, ensuring adequate environmental and social safeguards and strengthening transparency in the sector. (c) Key ISN Outcomesfor Pillar I 72. The above activities are designed to achieve key I S N outcomes. The key outcomes to which this ISN will contribute in the area o f economic management are: 1) to set up a modern and stable legal and accounting f/.amework for public financial management; 2) to strengthen human resources management in public administration, and 3) to achieve Government commitment to EITI principles and the beginning o f their application in the mining sector. Key outcomes to be achieved with regard to laying the foundations for improvements in the productive sectors are: 4) To ensure sustainableprovision of at least 5 MW o f electricity over the ISNperiod; 5) to rehabilitate main roads in Bissau; 6) to extend Bissau’s water network; and 7 ) to increase production ofpaddy rice. PILLAR 11 TO BASIC SERVICES, ESPECIALLY : INCREASING ACCESS IN RURAL AREAS (a) Financing Activities 73. The strategic objectives under the second pillar of the I S N will be achieved primarily through I D A and Trust Funded activities. The Bank will deliver a Participatory Rural Development Project (US$5 million SPF) beginning in FY09 in Oyo, the poorest and most marginalized region of the country, that will be expanded in FYI0 with IDA resources for a Community-Driven Development operation (US$5 million IDA) to finance social infrastructure services on the basis of community-driven development plans. The Emergency Food Security Support Project includes US$1.5 million for school 20 meals distributed by WFP to children and for food-for-work programs in the poorest regions. In the health sector, a SPF grant o f US$2.4 million has been approved to support the Second National Health Development Plan. The plan i s designed to improve service delivery in selected regions through human resources and supply chain management. The Bank will also help Guinea-Bissau prepare an important funding proposal for an Education Sector Project, to be elaborated in close collaboration with other donors. The country expects t o mobilize about US$IO million from the EFA-FTI Transition Fund for 2009/10, and additional resources thereafter from the Catalytic Fund to strengthen education services through school rehabilitation and construction, curriculum development, and teachers training. (b) Non-Financing Activities 74. In terms o f analytical support, the Bank will deliver a Social Service Sector Review and an Education Country Status Report in FY09 to inform the EFA-FTI Transition Fund and Catalytic Fund proposals. The PEMFAR will include a detailed public expenditure review o f the education sector, in support o f the government’s Education Sector Plan. (c) Key ISN Outcomesfor Pillar 1 1 75. The financing and non-financing activities under Pillar I1 are expected to contribute to three key outcomes. These are: 8 ) to increase enrollment in primary level education (notably for girls); 9) to improve the ability o f health facilities to provide the basic health package at the district level in three targeted regions, and I O ) to ensure that (male and female) direct beneJiciaries of Bank-supported rural developmentprojects are satisJied with the quality of services and goods delivered. CROSS-CUTTINGTHEME:SUPPORT FOR CAPACITY DEVELOPMENT 76. The multitude of Guinea-Bissau’s current challenges underscores the need for major capacity development efforts and for a capacity development action plan. The Country Team, with support from a Global Expert Team, will develop a C D action plan-together with local stakeholders’ including Government officials, NGOs, civil society organizations, and donor partners. This i s important in order to enhance individual skills and strengthen key public organizations and institutions that are critical for effective economic management and provision o f basic services. T h i s country action plan would be included in the next CAS. The action plan will identify and prioritize areas for capacity development, as well as principles and activities for the country program. One idea that will be discussed. specifically i s to establish C D criteria, in the sense o f a filter, for all new projects. The key outcome o f the work in this area will be: II) to have the Capacity Development Action Plan launched by the end o f the ISN period. 77. I n parallel to the elaboration o f the CD action plan, the country’s immediate CD needs will be strengthened through operational support and self-standing CD activities with a focus on leadership and public dialogue. Capacity development would be mainstreamed in new operations, including the Community-Driven Development Project and the three SPF-funded activities for economic governance, health and participatory rural development. The SPF for economic governance would be particularly important in building skills for transparent management o f public finances, public procurement and strengthened fiscal oversight. In addition, the proposed EFA-FTIproject would address weaknesses in the education system and lay the foundation for quality education o f the next generation o f citizens. The principal self-standing C D activities would be led by the World Bank Institute (WBI), and would include C D for strengthening leadership and demand-side governance. The key outcomes o f the work in this area will be: 12) to have demand-side governance and leadership activities launched for increased accountability ofpublic entities. An important aim will be to ensure strong participation in this area by women. 21 D. PROPOSED INTERIM ASSISTANCESTRATEGY - IFC AND M I G A ACTIVITIES 78. IFC’s strategy for Guinea-Bissau will focus on improving the investment climate. In addition, it would seek opportunities to support the development o f SMEs and pursue a proactive involvement in the infrastructure, financial and agribusiness (cashew nut) sectors. At present, IFC does not have a committed portfolio in Guinea-Bissau. 79. MIGA’s portfolio in Guinea-Bissau consists o f two active projects in support of the country’s telecommunications and tourism sectors. The telecommunications project, Orange Bissau S.A., i s a US$29 million investment by Sonatel (of Senegal) and i s the most recent mobile license in the country. The US$1 million tourism project i s to upgrade and expand one of the largest hotels in Bissau. MIGA i s also currently reviewing possible guarantee support for a major investment in the water sector with the water utility. 80. Table 3 below provides the currently planned overall financing and non-financing support from the Bank, IFC and MIGA during the I S N period. 22 Table 3: Planned Interim Strategy Assistance to Guinea-Bissau in FY09-FY10 (OngoingActivities I New Activities) Pillar 1: Strengthening Economic Management and Laying the Foundations for Improvements in the Productive Sectors - IDA Trust Funds & Other Funding Sources Economic Management: Economic Management: Financing: Financing: - Programmatic series of 2 DPOs: - SPF Economic Governance & Public Financial Economic Governance Reform Grant I Management TA (FY09: US$l.7m) (FY09, US$8m) Economic Governance Reform Grant I1 (FY10, US$4 m) - Emergency Public Sector Service Delivery Project (FY08: US$lOm) AAAESW: - PEMFAR (FYIO) Foundations for Productive Sectors: Foundations for Productive Sectors: Financing: Financing: -Multi-sector Inffastructure Rehabilitation - FPCR Emergency -~ Food Security - (FY09: _ Proiect . US$Sm; Project (FY06: US$lSm; Additional Financing EU Co-financing: US$4m) FY 11: US$2m) - GEF Coastal and Biodiversity Rehabilitation GEF - Coastal and Biodiversity Rehabilitation (FYOS: (FYOS: US$4.8m) US$3m) AAAJTA: -West Africa Regional Fishery Project (FY11: - Trust Fund Support for EITI++ US$1-2m, contingent on more IDA funds) - Global Expert Team: dialogue on extractive industries value chain (OPCFC) AAAESW: - Global Expert Team: benchmarks on electricity - Investment Climate Policy Note (FY09) sector reform in other fragile states (OPCFC) - Diagnostic Trade Integration Study (FY 10) - Trust Fund Support for follow-up on implementation - Country Economic Memorandum Multi-Sector of DTIS recommendations High Impact Program (FYI 1) MIGA Guarantees: - Telecoms, Tourism, Water Pillar 11: Increasing Access to Basic Social Services, Especially in R u r a l Areas - IDA Trust Funds & Other Funding Sources Financing: Financing: - Coastal and Biodiversity Rehabilitation (FYOS: - GEF Coastal and Biodiversity Rehab. Project/FIAL US$3m) comp. (FYOS: US$4.8m) - Community-Driven Development Project (FY10: - SPF Participatory Rural Development Project (FY09: US$Sm) US$Sm) AAAfEsw: - SPF 2"dNational Health Devt. Plan (FY09: US$2m) - Social Sector Review (FY09) - - EFA/FTI Transition Fund Education(FYIO: - Education Country Status Rtport (FY09) U S $ 1Om) Cross-Cutting Theme: Support for Capacity Development (CD) AAAITA: - Leadershipprogram @!O B - Demand-side governance support F B I ) - Global Expert Teams for CD and E1TI-H- dialogue (OPCFC) Strategic tasks: Preparation of High Impact Program (HIP)and Mobilization of partnerships and resources for the HIP. 23 STEPS: TOWARDS E. NEXT A HIGHIMPACT PROGRAM 8 1. The Bank, together with donor partners, can play a critical role in helping to break Guinea- Bissau’s equilibrium trap o f instability, weak governance and low growth. This can be done through leveraging IDA’S convening power, i t s ability to act as a platform for a broader pool o f resources, i t s technical expertise and the quality o f i t s policy advice to mobilize additional resources for a High Impact Program o f assistance. Such a program would be designed to achieve transformative change in key sectors o f the economy so as to break the l o w level equilibrium in which the country i s trapped. Examples o f interventions under such a High Impact Program include the areas o f agriculture, electricity provision and transport infrastructure. Such interventions would be designed to transform the respective sectors by financing investment, operations and maintenance, capacity building and policy reform, with a medium-termcommitment to provide financial and technical assistance over a sufficiently long period so that improved performance becomes self-sustaining. The program would consider regional dimensions o f the key sectors and the scope for further integration. Continued budget support and technical assistance will also be needed to support complementary macroeconomic reforms and institutional development. 82. A High Impact Program that begins to address the economic root causes o f political instability and weak governance can only succeed if there i s a strong commitment from national stakeholders. A firm commitment to changing the “rules o f the game” i s required in particular on the part o f the Government in order to promote favorable conditions for increased donor engagement. At the same time, such a compact to promote stability and transparency must also engage key stakeholders, including for example in the security sector, for there to be a critical step-up in development to a higher level equilibrium. The design o f such a program would therefore need to draw on broad consultations by the Government o f Guinea-Bissau following the Presidential elections with key national stakeholders and with donor partners. 83. Guinea-Bissau must moreover think regionally while formulating its future development plans on the national level. Given the small size o f the country, i t s geographic proximity to the Gambia River basin, its proximity to sub-regional hotspots and i t s close cultural and historic ties with Cape Verde, there will be no transition to more stable economic development without regional integration. The Bank will help to identify potential synergies from regional integration as part o f the dialogue with country stakeholders on a future High Impact Program. 84. The Bank would need significantly higher resources than are available in its current envelope to be able to play a catalytic role in breaking the low level equilibria in key sectors in a sustainable way. The Government and donor partners look to the Bank to play a leading role in supporting structural reforms and key sectoral investments, as well as developing analytical and advisory assistance to underpin reforms and strengthen institutions. To this end, a medium-term program, including costing, would be developed during the I S N period in order to inform the subsequent CAS. The Bank would analyze options in particular in three key areas described below, namely agriculture, transport infrastructure and energy. Both the Government and non-governmental stakeholders have confirmed that these are priority areas. They have also emphasized that collaboration with both the private sector and civil society will be essential for the effectiveness o f future operations in these areas, and that these should be complemented by targeted interventions to improve governance and accountability. 1. AGRICULTURAL DEVELOPMENT 85. Approximately 13,000 tons of rice are required annually to meet production shortfalls based on consumption trends. These shortfalls make the country highly vulnerable to imported food price inflation. Bringing agricultural production up to pre-independence levels would require 24 rehabilitation o f rice fields, the introduction o f high-yielding varieties o f seeds, access to finance, extension services, and rural infrastructure. The Emergency Food Security Support project, with funding from FPCR TF and EU, begins to respond to these requirements, but more i s needed. 86. Key elements of a recovery program for the agricultural sector will most likely focus on agricultural technology to improve productivity and processing, implementation o f sustainable land management, and improving access to rural finance. The strategy would likely aim to increase agricultural production, in particular rice, by extending the area under exploitation through the recovery o f previously farmed but now abandoned rice fields and by increasing productivity through improved technologies. It would also aim to increase value added from cashew production and exports by supporting private sector initiatives in this respect. 87. The main beneficiaries o f a high impact approach for the agricultural sector will be the rural population and SMEs linked to the sector. There will also be positive impacts on the government’s fiscal position due to increased tax revenue. INFRASTRUCTURE 2. TRANSPORT 88. Poor rural infrastructure and the limited interconnection o f local, national and sub-regional markets undermine the country’s capacity to attain food security and boost economic benefits from the agricultural sector. Guinea-Bissau’s ability to increase exports will depend largely on efficient access to the port via the 4,380 km o f roads, two-thirds o f which are unpaved.’* An integral component o f improving rural infrastructure will be to reestablish the primary and secondary road system linking agriculture areas in the interior to the cities and port, as well as to reconstruct and extend tertiary roads to ensure better quality o f agricultural produce-ther essential rural investments include upgrading storage and post harvest facilities. The government has defined a “priority network” o f primary and secondary roads for intensive maintenance. 89. The Port o f Bissau, which i s the only major functioning international port in the country, i s the other critical transport bottleneck for economic growth. The objective would be to develop the currently dilapidated Port o f Bissau into a commercially viable entry point into the sub-region - supported in the medium-term by regional road infrastructure connectivity. K e y elements o f a port recovery plan include 1) rehabilitation o f the internal ring road (main access); 2) clearing ship-wrecks; 3) dredging the channel; 4) purchasing new equipment; and 5) retrenching redundant staff. The settlement o f outstanding financial issues related to an earlier, unsuccessful privatization with a private company, Tertir, need to be resolved before any contracting o f port services, public-private partnership or re-privatization o f operations. Preliminary estimates for a successful turnaround o f the port performance suggest it may take four years, but the functioning o f the port has t o be assured as quickly as possible due to upcoming competition from other regional ports, which will become more accessible in light o f improvements in the road connection to Senegal and The Gambia when the Sao Vicente Bridge i s completed in 2009. 90. The main beneficiaries of a high impact approach for the rural infrastructure will be the rural population, in terms o f better opportunities for the marketing their produce and better access to social services. The private sector, in particular traders and processing enterprises, will benefit as well from better rural infrastructure, in terms o f more timely and less cost-intensive supplies. Exporters, importers and consumers will benefit from improved port infrastructure. The government’s benefit will mainly be in increased tax income. However, there will be stakeholders who might consider they are losing competitive advantages and bargaining power once rural areas become more accessible and competition increased, as well as opportunities for rent seeking from a currently overstretched port with i t s cumbersome procedures. ’*African Development Bank - Estudo Integrado do Setor dos Transportes em Quatro Paises Lus6fonos, May 2007 25 . 3. ELECTRICITY 91. The World Bank and the European Union are working together to help Guinea-Bissau put in place sustainable arrangements for ele~tricity.’~ The aim i s for generation capacity to reach 23 M W within the next three years, for connections and metering t o return the customer base to around 20,000, and for collections to be sufficient to pay for fuel, a management fee and rent on the generating equipment. This arrangement would hold until the country i s able to benefit from less expensive hydro- power and connections to the regional grid through the O M V G regional cooperation program. This could be realized by 2014 and provide 35MW in generation capacity. 92. Implementing this strategy requires significant additional resources. These are needed to extend the lease on existing equipment, purchase operating fuel and extending the rental contract for the equipment, and purchasing an additional 5 M W heavy f u e l o i l generator.14 Further a management contract with an external firm to manage the energy utility i s considered necessary for an estimated four- year period in order to consolidate reforms. An existing TA grant i s supporting improvements in institutional capacity to prepare the public utility for a management contract and a self-financing PPA for 15MW. 93. The main beneficiaries o f a significantly more efficient electricity sector will be those elements o f the population and private sector who need reliable services, and are able to pay the electricity tariffs. Losers will be all those who are benefitting from failings under the current situation, including those who have power provided to their houses and institutions, when it i s available, and don’t pay tariffs; those who divert f u e l destined for the EAGB power generators; those who divert EAGB revenues without proper controls; and private providers who will lose customers once electricity will become publicly available in a reliable manner for a lower price. There will be an important segment o f the population that will only benefit indirectly from better electricity provision, since they will not be able to afford connecting their own dwellings to the power grid, although they will benefit from powered social infrastructure, street lights, and businesses working after dark, etc. F. PARTNERSHIPSAND DONOR COORDINATION 94. Implementation o f the Bank-supported program requires close coordination with strategic partners. These include the IMF, the European Union, the AfDB, the UN System, and bilateral donor partners such as Spain, Portugal and Brazil. The Government’s economic program agreed with the IMF under the on-going EPCA establishes an overall framework o f macroeconomic targets and policy reforms. Provided performance i s solid under the program, it i s expected that the IMF will continue i t s technical and financial support to Guinea-Bissau beyond the current EPCA, most likely via a proposed Poverty Reduction and Growth Facility in 2009. The European Union i s by far the most important donor, providing €100 million over the 2008-2013. I t s key priorities are: (i) conflict prevention; (ii) administrative and security sector reform; (iii) water and energy (in close collaboration with the Bank, and with a strong focus on regional cooperation with the Gambia River Development Organization, OMVG); and (iv) budget support for fiscal stabilization. Other important donors, apart from the World Bank, are China (building construction), Portugal (budget support, social sectors, governance incl. SSR), Spain (budget support, infrastructure: health, bridges; agriculture), the AfDB (agriculture, fishery, economic governance), and Brazil (South-South know-how transfer). Guinea-Bissau i s a priority country for Brazil and it chairs the Guinea-Bissau Configuration o f the UN Peace Building Commission l3 The assistance of the EU has gone into repairing the distribution network. In the future EU assistance will focus on building a ring around the city to prepare connectionwith the regional grid. l4The World Bank i s supporting the electricity sector through the Multi-Sector InfrastructureRehabilitation Project. In doing so, it has already reprogrammed the project to make more resources available to electricity. In the process, financing for urban road rehabilitation and youth employment are no longer available. 26 (UNPBC), which i s also providing US$6 million through the UN Peace Building Funds. The International Organization for Migration (IOM) i s planning several programs for Return Assistance to Migrants and Governments. 95. I t will be important to reverse the decline in donor support after the internal conflict o f 1997/98. Prior to the 1998-99 conflict, Guinea-Bissau benefited from significant donor support both in value and in the number o f partners. Since then, several development partners have suspended their aid programs to the country, and the country has come to be regarded as a ‘donor orphan’. The challenge ahead i s therefore t o encourage a resumption o f increased aid to close financing gaps and support longer t e r m development in Guinea-Bissau. In this context the Bank can play a key catalytic role, together with various donor partners, in organizing a donor round table to bring donor support together behind a high impact program underpinned by a substantive and credible reform agenda advanced by the Government and reflected in agreements with the IMF and the Bank. A high impact donor partnership for the country’s medium-term development could complement the Round Table on security sector reform. 96. Donor coordination needs to be improved in line with the Paris Declaration. Government Ministries are not yet leading donor coordination and priorities for aid are often still defined by donors rather than by the authorities, resulting in inefficiencies in the use o f limited aid resources. However, there are positive signs o f better coordination among key actors: seven thematic group^'^ have been established to strengthen coordination between the Government, donors and other stakeholders. The Bank i s coordinating the infrastructure group and participating in the thematic group on economic governance and private sector development. 97. There are a range o f donor coordination initiatives in support of the DENARP objectives. The Inter-Agencies Coordination Committee on Immunization and Surveillance received an award o f US$135,000 last year from GAVI for i t s good performance. The Multi-Sectoral Coordination Committee for the Global Fund, which comprises 16 representatives from different organizations, including Government, civil society, NGOs and faith-based organizations, the private sector, academia, and People Living with HIV/AIDS, meets frequently to discuss relevant issues and propose solutions. Most recently, a three-year agreement was signed between the Ministry o f Finance, the Delegation o f the European Union, France, Spain, Portugal, and the Bretton Wood institutions to create a joint donor framework for coordination o f budget support interventions (Cadre Conjoint de Concertationpour 1’Appui Budgbtaire). The Cadre Conjoint provides for information sharing by the M o F and donor coordination o f budget support. 98. Coordination with other donors allows the Bank to be more selective in its support. For example, the Bank will not be able to have a direct impact on the drug trafficking problem, security sector reforms, or civil service reforms in Guinea-Bissau’s context are closely intertwined with security sector reforms. The EU has been especially supportive in these areas. With regard to political governance and justice, donor partners such as the UNDP and Portugal have played key roles. At the same time, there i s scope for partnerships, e.g. with FAO, the World Food Programme and the EU on the Food Price Crisis Response or with various partners on the energy sector. G. MONITORING AND EVALUATION 99. Monitoring and evaluation o f progress under the Interim Strategy will be regular and tied into portfolio reviews. The I S N outcomes will be measured through data collected through ISRs during l 5 The groups are: 1. Human Development, 2. Food Security, 3. Infrastructure, 4. Defense and Security Sector Reform, 5. Administrative Reform, 6. Political and Juridical Governance, 7. Economy and Private Sector Governance. See Annex G for membership details, which indicate donor priorities. 27 the I S N period as well as through an assessment to be prepared at the end o f the I S N period and in preparation o f a full CAS during FY 10. In addition, the Bank will monitor the standard Bank input indicators related to i t s portfolio on a regular basis, and with Government as part o f the CPPR process. The Bank will also consult regularly with strategic partners and stakeholders in civil society as part o f the monitoring and evaluation o f i t s portfolio. The results framework matrix proposes key benchmark indicators to measure the proposed outcomes (see Annex Al). IV. MANAGINGRISKS 100. The risks associated with the Interim Strategy cannot be underestimated and led to the decision to pursue an I S N at this time rather than a full CAS. Even with a range o f mitigation measures in partnership with donor partners, it will be challenging to manage the political, macroeconomic, governance, progradproject implementation and fiduciary risks described below, and the overall risk after mitigation remains substantial. Nevertheless, the Bank considers that the rewards o f engagement are potentially very high in a low-income fragile state like Guinea-Bissau and outweigh the risks. Moreover, the I S N represents a prudent but significant step forward towards engaging in a high impact program in the medium term. A. POLITICAL R I S K S 101. The country remains vulnerable to significant political instability. The key internal risks are political instability and the closely related risk o f military mutinies or attempts to seize power. It i s not yet self-evident that power struggles will be resolved in non-violent fora such as the National Assembly or the judiciary, and politicization o f issues along ethnic lines remains a latent risk.16 Political instability could flare up again in the period leading to the Presidential elections or in their immediate aftermath. Looking beyond the elections, there could be s t i f f resistance from the military or from public servants t o essential security sector and civil service reforms, which could derail t h i s agenda and place considerable pressure on other parts of the budget. More generally, political and social pressures could lead to a weakening o f fiscal discipline, which would undermine the program agreed with the IMF, notwithstanding the express commitment o f the current Government to fiscal stabilization and to reforms (as expressed for example during the World Bank Spring Meetings 2009). Political pressures could also affect such areas as the development o f the country’s mining potential. In the medium-term, there may also be a risk o f social tension due to the large proportion o f unemployed or under employed young people in the population, which the Bank should observe closely. 102. The Bank cannot mitigate these risks alone. In order to mitigate the overall political risks, the UN (in particular, UNOBGIS) and other multilateral bodies (like the Community o f Portuguese Speaking Countries, ECOWAS, WAEMU), the Government o f Cape Verde, and several donors are supporting and advising the country in i t s political transition to Presidential elections, and with respect to SSR. A recent Round Table involving the above-mentioned parties and the Government o f Guinea-Bissau instilled hope that it will be possible to make more rapid progress in the coming months. The Bank has selected i t s proposed operations carefully in that they are considered both technically feasible (having benefitted from extensive analytical work) and politically achievable (having benefitted from numerous internal governmental discussions and consultations with stakeholders). Moreover, the Bank has strengthened i t s emphasis on demand-led community-driven development approaches so as to encourage broad l6The most dangerous risk for escalation o f a conflict along ethnic lines derives from the fact that the security sector i s highly dominated by one ethnic group, the Balante - and any attempts to drastically cut down numbers o f security sector personnel will affect this ethnic group, which i s predominantly based in the poorest region of the country, Oyo, in particular (see Annex 5). 28 participation and clearly respond t o community priorities. In addition, an essential risk mitigation measure will be a continuous and profound analysis o f the political economy context o f the respective sectors o f intervention, and intensive strategic communication based on such analysis. The World Bank will increase and improve its efforts in t h i s area. Consultations on the I S N have taken place on various levels and with a diverse range o f stakeholder groups. These consultations have basically confirmed the approach proposed by the Bank for the I S N and the major areas o f engagement envisaged under the High Impact Program. Nonetheless, the residual risk remains high. B. MACROECONOMIC R I S K S 103. Guinea-Bissau i s highly vulnerable to exogenous shocks, including commodity price volatility and the impact o f the global economic slowdown. Exports and government revenues depend significantly on the cashew production, which i s also subject to climatic risks. The 2008 food and fuel and fertilizer price shocks illustrate the potential for external (terms o f trade) shocks t o have significant impacts both in terms o f attaining macro-fiscal targets and more importantly in terms o f poverty reduction. The ongoing global financial crisis presents considerable risks for Guinea-Bissau, not so much directly via the health o f the banking system in Bissau as via secondary effects o f the economic down- turn on commodity prices and exports (with follow-on effects on fiscal receipts), reduced inflows from remittances, and more restricted access t o finance for both the public and private sectors. Guinea-Bissau i s not well placed to mitigate these risks via countercyclical fiscal policy in light o f i t s large budget and current account deficits. A deeper than expected global slowdown could undermine the country’s already challenging stabilization efforts which rely heavily on high and sustained donor support and remittances. A failure o f the PRGF-supported program to materialize (itself the result o f possible reform backsliding) i s a further risk. 104. Given the vulnerability to exogenous shocks and the volatile global environment, the IMF and IDA will continue to closely monitor the government’s macroeconomic performance. The P F M reforms supported by the DPO series and SPF support will also help enhance controls in the execution o f overall and sectoral budget envelopes. In January 2008, the Board o f the World Bank approved an exceptional increase in the ceiling for HIPC interim debt relief from 30 percent to 50 percent, which helped to reduce the debt service to be paid by the country. Performance under the IMF EPCA program has been mixed-mainly due to exogenous and political shocks-however the Fund remains engaged under an EPCA program and expects to initiate discussions towards a PRGF arrangement later in 2009. The Bank also plans to continue to provide interim debt r e l i e f under the HIPC during the ISN period, and once the H l p C Completion Point i s reached, HIPC and Multilateral Debt Relief Initiative debt r e l i e f would significantly reduce the external debt burden and ease the fiscal situation. Increased donor engagement in future, in the context o f the Fund-supported EPCA and a possible successor PRGF arrangement, would help to support reformers’ efforts to sustain fiscal consolidation, a pre-requisite for a broader normalization o f public sector performance. Nevertheless, the residual risk remains high. c. GOVERNANCE RISKS 105. The r i s k s o f poor governance in implementation are high and anti-corruption instruments are in their infancy. Weak institutions and difficult economic circumstances contribute to generating an environment that i s highly susceptible to corruption and political interference, while cash from drug trafficking jeopardizes the r u l e o f law and security, and the corruption o f public authorities by drug traffickers could lead to a gradual slide into a narco-state. Another dimension i s the inadequate decentralization framework as well as weak institutions, capacity and governance, which increase risks t o project impacts at the local level. 106. The Bank would mitigate these risks by providing financing and technical assistance to stabilize and strengthen key public institutions critical to rule of law and basic services. Addressing 29 the risks associated with drug trafficking will require strong support from donor partners on vigilance and enforcement, strengthening o f security sector reforms and support for viable alternative livelihoods for vulnerable populations. The Bank will contribute t o strengthening public financial management, demand- side governance and transparency initiatives, including for the EITI. IDA and trust-funded operations in Guinea-Bissau will draw on implementation mechanisms that contain frnancial management and procurement frameworks which have been tested and are under constant monitoring, and will expand the use o f participatory processes by supporting community-driven development. The introduction o f capacity development as a cross-cutting theme for the ISN will, with effectively designed support via all project interventions and complementary WBI activities, serve to strengthen governance and leadership development at the country-level as well. However, the residual risk will remain substantial. D. PROGRAM AND PROJECT IMPLEMENTATION R I S K S 107. Institutional weaknesses pose a risk to project management and the achievement o f the envisaged results. Adherence to reform programs has at times slipped in the face o f fiscal difficulties, political instability and frequent turnover at senior government and administrative levels. The tight fiscal situation makes it challenging to meet debt service requirements on a regular basis, and in consequence, IDA has come close to suspending disbursements on a number o f occasions. If the Bank and other donor partners are to engage in a High Impact Program with satisfactory prospects for success, strong commitment from all national stakeholders will be indispensable. This i s especially true for the Government which will need to promote conditions that are conducive to increased donor support via i t s commitment to clear “rules o f the game”. 108. The implementation risks will be mitigated via intensive supervision from the Washington and Dakar Offices. Bank supervision will complement a range o f capacity building activities foreseen under the I S N as a cross-cutting theme with a view to ensuring substantial TA i s provided to strengthen public institutions. In addition, the Bank will strengthen i t s strategic communication with counterparts in the country, including both Government and key non-governmental stakeholders and other donors. Nonetheless, the residual risk remains substantial. E. FIDUCIARY RISKS 109. There are important fiduciary risks to operations in Guinea-Bissau. A 2006-07 PEFA analysis rated Guinea-Bissau at a D level on all but two o f 25 applicable standard indicators o f public financial management performance, indicating deep-seated and broad weaknesses in budget credibility, comprehensiveness, preparation, execution, reporting, accounting, control, and transparency, although some progress has been made since then with SPF support. The current procurement code i s not updated in line with WAEMU’s directives, institutions for regulation and control remain deficient and there i s weak procurement capacity in most public institutions. 110. The risks will be mitigated at both the country and project level with Bank support. At current, the Bank supports only limited activities with respect to the mitigation o f procurement risks outside the context o f individual projects, however support for strengthening public financial management i s contained in the DPO series and the economic governance SPF will provide additional support to strengthen procurement and financial management systems. At the project level, a fiduciary hub, staffed with experienced members o f current PIUs, i s in the process o f being established. The hub will be in charge o f financial management and procurement for several IDA-funded projects by shared arrangements for project coordination. Nevertheless, the residual risks remain substantial. 30 W f 3 a m .e m N m Annex A2: Country at a Glance Sub- I Key D e v e l o p m e n t I n d i c a t o r s Guinea- Saharan LOW Age distribution, 2007 Bissau Africa income (2008) Male Female Population, mid-year (millions) 1.7 800 1,296 75-79 Surface area (thousand sq. km) 36 24,242 21,846 6064 Population growth (%) 3.0 2.4 2.1 Urban population (% of total population) 30 36 32 45-48 30-24 GNI (Atlas method, US$ billions) 0.3 762 749 GNI per capita (Atlas method, US$) 200 952 578 15-19 GNI per capita (PPP, international $) 470 1,870 1,500 M GDP growth (%) 3.3 6.2 6.5 30 20 10 0 10 20 30 GDP per capita growth (%) 0.3 3.7 4.3 percent (rnosi recent estimate, 2003-2008) I Poverty headcount ratio at $1.25 a day (PPP, %) 50 Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 66 72 Life expectancy et birth (years) 46 50 57 Infant mortality (per 1,000 live births) 119 94 85 300 Child malnutrition (% of children under 5) 25 27 29 250 200 Adult literacy, male (% of ages 15 and older) 69 72 Adult literacy, female (% of ages 15 and older) 50 50 150 Gross primary enrollment, male (%of age group) 84 99 100 100 Gross pnmary enrollment, female (% of age group) 56 88 89 50 Access to an improved water source (% of population) 0 57 58 68 Access to improved sanitation facilities (% of population) 33 31 39 I 1990 1995 2000 2008 I N e t Aid Flows I980 1990 2000 2008 (US%mi//ions) Net ODA and official aid 58 126 80 82 Growth of GDP and GDP per capita (%) Top 3 donors (in 2006): European Commission 11 5 17 33 12000 Portugal 13 15 15 10000 Francs 3 9 7 10 8000 6WO Aid (% of GNI) 55.5 54.2 40.4 26.7 4000 Aid per capita (US$) 73 124 59 50 2w0 0 Long-Term E c o n o m i c T r e n d s -2000 95 05 Consumer prices (annual % change) 33.0 8.6 10.4 GDP implicit deflatw (annual % change) 11.5 30.2 3.2 8.9 +GOP - GOP per Cwta Exchange rate (annual average, local per US$) 0.8 33.6 709.9 478.6 Terms of trade index (20420 = 100) 105 1W 96 1980-90 1990-2000 2000-08 (average annual growth %) Population, mid-year (millions) 0.8 1.0 1.4 1.7 2.5 3.0 3.0 GDP (US$ millions) 111 244 216 430 4.0 46.5 0.6 (% of GDP) Agnculture 44.3 60.8 58.8 55.5 4.7 52 2 0.8 Industry 19.7 18.6 12.3 12.9 2.2 41.8 0.9 Manufacturing 8.4 10.0 10.2 41.9 0.7 Services 36.1 20.6 28.9 31.6 35 44.1 0.8 Household final consumption expenditure 73.3 86.9 102.3 81.3 -1.2 58.5 -5.6 General gov't final consumption expenditure 27.6 10.3 14.0 13.9 7.2 50.1 3.3 Gross capital formation 28.2 29.9 11.6 24.9 12.9 -7.0 Exports of goods and services 12.7 9.9 44.6 29.8 -1.7 68.2 0.4 Imports of goods and services 41.8 37.0 72.5 49.8 0.3 43.8 -4.3 Gross savings -13.6 15.3 3.7 22.9 Note: Figures in italics are for years other than those specified. 2008 data are preliminary. .. indicates data are not available. a. Aid data are for 2006. Development Economics, Development Data Group (DECDG). 33 Guinea-Bissau Balance of Payments and Trade (US$ millionsj 2000 2008 I Governance indlcators, 2000 and 2007 Total merchandise exports (fob) 87 91 Total merchandise imports (~8) 117 162 Voice and accountability Net trade in goods and services -50 -68 PoliticBlstability Current account balance -17 -8 as a % of GDP -7.9 -1.9 Regulatory quality Rule of law Workers' remittances and compensation of employees (receipts) 2 29 Controlof mrmption Reserves,including gold 47 1oa o 25 50 75 im Central Government Finance urn7 Country's percentile rank (0-100) Dxxa hm%r values 8mpY M e r mt1w (96 of GDP) Current revenue (includinggrants) 26.7 24.8 Sovrce KautmannXmay-Martruul. World Bank Tax revenue 10.7 10.2 Current expenditure 33.8 24.3 Technology and Infrastructure 2WO 2007 Overall surplusldeficit -17.7 -12.8 Paved Dads (%of total) 10.3 Highest marginal tax rate (%) Fixed line and mobile phone Individual subscribers (per 1W people) 1 18 Corporate High technology exports (% of manufactured exports) External Debt and Resource Flows Environment (US$ millions) Total d%btoutstandingand disbursed 904 1,432 Agnulltural land (%of land area) 58 58 Total debt service 20 32 Forest area (% of land area) 75.4 73.7 Debt relief (HIPC. MDRI) 546 Nationally protected areas (%of land area) .. 0.0 Total debt (% of GDP) 418 4 333.3 Freshwater resources per capita (w. meters) .. 10.019 Total debt service (%of exports) 18.7 23.0 Freshwater withdrawal (% of internal resources) 1.1 Foreign direct investment(net inflows) 0 0 C02 emissions per capita (rnt) 0.18 0.17 Portfolioequity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) Composition of total external debt, 2007 Energy use per capita (kg of oil equivalent) (Us% millions) IBRD Total debt outstanding and disbursed 0 0 Disbursements 0 0 Pnnupal repayments 0 0 Interest payments 0 0 US$ rrllions IDA Total debt outstandingand disbursed 228 315 Disbursements 14 11 Private Sector Development 2000 2W8 Total debt serviee 4 8 Time requiredto start a business (days) - 233 IFC (fiscal yea0 Cost to start a business (% of GNI per capita) - 257.7 Total disbursed and outstanding portfolio 1 0 Time requiredto register property (days) - 211 of which IFC own account 1 0 Disbursementsfor IFC own accwnt 0 0 Ranked as a major wnstraint to business 2000 2007 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own accwnt 0 0 EleMcity .. 41.4 Access tolwst of financing .. 19.6 MlGA Gmss exposure - 27 Stock market capitalizetion(% of GDP) New guarantees - 27 Bank capital to asset ratio (%) Note Figures in italics are for years other than those speufied 2008 data are preliminary 4/6/09 indicates data are not available -indicates observabn is not applicable Development Economics. Development Data Gmup (DECDG) 34 Annex B2: Selected Indicators o f B a n k Portfolio Performance and Management (As o f 5/6/2009) Indicator 2006 2007 2008 2009 Portfolio Assessment Number of Projects Under Implementationa 5 5 6 5 Average Implementation Period (years) 3.7 4.9 4.0 4.0 Percent of Problem Projects by Number a , c 0.0 20.0 0.0 20.0 Percent of Problem Projects by Amount as 0.0 9.8 0.0 15.7 Percent of Projects at Risk by Number a , d 40.0 60.0 60.0 60.0 Percent of Projects at Risk by Amount 20.7 41.7 45.3 51.4 Disbursement Ratio (%) e 25.0 28.7 49.2 50.6 Pottfoiio Management CPPR during the year (yesho) No No No No Supervision Resources (total US$) 397 524 464 315 Average Supervision (US$/project) 79 105 77 63 Memorandum item Since FY 80 Last Five FYs Proj Eva1 by IEG by Number 22 2 Proj Eva1 by IEG by Amt (US$ millions) 278.9 30.4 % of IEG Projects Rated U or HU by Number 36.4 50.0 % of IEG Projects Rated U or HU by Amt 39.2 53.2 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 35 Annex B3: IDA Program Summary (As o f 5/6/2009) Proposed IDA Base-Case Lending Program a Fiscal year Project ID US$(M) Strategic Rewards lmplementation (Hrnk) Risks (H/M/L) 2009 GW-Economic Governance DPL 8.0 H H 2010 GW-Community-DrivenDev 5.0 H M 2010 GW-Second Economic Governance 4.0 H M 2011 GW- AF Multi-Sector Infrastructure 2.0 H H Rehabilitation Project Overall Result 19.0 36 Annex B3: I F C M I G A Program Summary (As o f 5/6/09) IFC 2006 2007 2008 2009* Commitments IUS$m) Gross Net** Net Commitments bv Sector (%) Net Commitments bv Investment Instrument (%) * As of March 31, 2009 ** IFC's Own Account only MIGA OutstandingExposure (Gross Exposure, US$ millions) As of end of fiscal year FY2003 FY2004 FY2OOS FY2006 FY2007 FY2008 FY2009* # o f Projects Guaranteed for Investments in Guinea-Bissau .o.o 0.0 0.0 0.0 0.6 29.5 21.8 # o f Projects Guaranteed to Investors fiom Guinea-Bissau VenGing Abroad 0.0 0.0 0.0 0.0 0.0 0.0 0.0 * As ofMarch 31,2009 37 Annex B4: Summary o f Non-lending Services (As o f 5/6/09) Completion FY Cost ' Product Audience Objective FY (US$OOO) Planned in FY09 CPPR annual 25 Bank, Government Problem solving, strategic planning Country Program Support annual 29 Bank, Government Problem solving, strategic planning Gen. Economic PRSP / HIPC annUal 109 Bank, Government, Donors Knowledgegeneration, problem solving, Monitoring strategic planning ISN 2009 63 Bank, Government, Donors, Knowledge generation, public debate, Public Dissemination problem solving, strategic planning Social Sector Review Note 2008 63 Bank, Government, Donors, Knowledge generation, public debate, (dissemination) Public Dissemination problem solving Education Country Status Report 2009 63 Bank, Government, Donors, Knowledge generation, public debate, Public Dissemination problemsolving Diagnostic Trade Integration 2009 47 Bank, Government, Donors, Knowledgegeneration, public debate, Study Public Dissemination problemsolving Investment Climate Policy Note 2010 63 Bank, Government, Donors, Knowledge generation, public debate, Public Dissemination problem solving Public Expenditure 2010 125 Bank, Government, Donors, Knowledge generation, public debate, ReviewPEMFAR Public Dissemination problem solving Planned in FYlO CPPR annual 25 Bank, Government Problem solving, strategic planning Country Program Support annual 29 Bank, Government Problem solving, strategic planning Gen. Economic PRSP / HIPC annual 109 Bank, Government, Donors Knowledge generation, problem solving, Monitoring strategic planning CAS 2010 63 Bank, Government, Donors, Knowledgegeneration, public debate, Public Dissemination problemsolving, strategic planning Diagnostic Trade Integration 2009 31 Bank, Government, Donors, Knowledgegeneration, public debate, Study (dissemination) Public Dissemination problemsolving Public Expenditure 2010 63 Bank, Government Knowledgegeneration, public debate, ReviewPEMFAR problemsolving Investment Climate Policy Note 2010 20 Bank, Government, Donors, Knowledgegeneration, public debate, Public Dissemination problemsolving EITI Capacity Building 2010 50 Bank, Government, Donors Knowledgegeneration, public debate, problem solving - CEM Multi-sector High Impact 2011 240 Bank, Government, Donors, Knowledgegeneration, public debate, Program Public Dissemination problem solving, strategic planning Planned in FYll CPPR annual 25 Bank, Government Problem solving, strategic planning Country Program Support annual 29 Bank, Government Problem solving, strategic planning Gen. Economic PRSP / HIPC annual 109 Bank, Government Knowledgegeneration, problem solving, Monitoring strategic planning CAS 2011 31 Bank, Government, Donors, Knowledge generation, public debate, Public Dissemination problem solving, strategic planning EITI Capacity Building 2010 50 Bank, Government, Donors Knowledgegeneration, public debate, problem solving - CEM Multi-sector High Impact 2011 60 Bank, Government Knowledgegeneration, problem solving, Program strategic planning 38 Annex B6: Key Economic Indicators (As o f 5/6/2009) Acliutl tsililratf Projected lndicrttor 2005 2006 2007 ZtnB 'W 3010 201 I N a t i o n a l accounts (as % of GDP) Gross domestic product" 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 54.9 54.7 53.1 55.5 55.3 55.0 54.4 Industry 14.3 14.0 13.1 12.9 13.0 13.2 13.7 Services 30.8 31.3 33.8 31.6 31.6 31.8 31.9 Total Consumption 88.5 103.9 92.3 95.1 98.5 97.0 95.0 Gross domestic f i x e d investment 26.5 22.8 25.7 23.8 23.9 24.2 24.5 Government investment 14.5 11.9 13.3 13.2 13.7 13.9 14.2 Private investment 12.1 11.0 12.4 10.6 10.2 10.3 10.4 EXPORS (GNFS)~ 31.3 18.7 28.0 29.8 29.3 26.3 27.4 Imports (GNFS) 45.2 46.7 44.6 49.8 51.3 47.1 47.0 Gross domestic savings 11.5 -3.9 7.7 4.9 1.5 3.0 5.0 Gross national savings' 24.8 12.8 34.4 22.9 19.8 18.1 19.8 Memorandum items Gross domestic product 302.3 317.4 382.0 429.6 476.1 448.2 476.2 (US$ m i l l i o n at current prices) GNl per capita (US$, Atlas method) 180 190 200 220 240 250 250 Real annual growth rates (%, calculated 60m 86 prices) Gross domestic product at market prices 35 0.6 2.7 3.3 1.9 3.1 3.8 Gross Domestic Income -10.3 27.3 9.0 4.9 0.4 0.1 0.9 Real annual per capita growth rates (%e, calculated f r o m 86 prices) Gross domestic product at market prices 0.4 -2.4 -0.3 0.3 -1.1 0 .I 0.8 Total consumption 7.0 27.7 -18.8 6.0 5.2 -2.4 -2.7 Private consumption -2.1 45.8 -22.6 13.3 7.8 -2.2 -3.4 B a l a n c e o f Payments (million US$ ) EXPOIS (GNFS)~ 94.6 59.3 106.8 128.1 139.6 117.7 130.6 Merchandise FOB 89.4 55.9 73.3 90.7 85.3 73.2 83.2 Imports (GNFS)~ 136.7 148.4 170.3 214.0 244.3 211.1 223.7 Merchandise FOB 95.0 108.7 102.0 141.9 146.5 129.5 139.3 Resource balance -42.2 -89.0 -63.5 -85.9 -104.8 -93.4 -93.1 N e t current transfers 52.5 62.4 109.9 85.0 96.0 75.8 78.4 Current account balance -1.7 -36.0 38.4 -8.4 -17.3 -25.5 -22.8 N e t private foreign direct investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Long-term loans (net) -39.4 -35.5 -57.6 -58.8 -60.8 -43.9 -46.2 Official -2.6 -8.0 -1.1 Private -36.9 -27.4 -56.6 Other capital (net, mcl. crrnrs & ommissLnns) 60.7 65.7 41.2 82.2 84.8 75.8 75.8 Change in reservesd -19.6 5.8 -22.0 -15.0 -6.7 -6.4 -6.9 Memorandum items Resource balance (% o f GDP) -13.9 -28.0 -16.6 -20.0 -22.0 -20.8 -19.6 Real annual growth rates ( YR86 prices) Merchandise exports (FOB) -9.7 -41.9 -7.6 -0.5 13.7 4.5 13.7 Primary Manufactures Merchandise imports (CIF) -1.1 -9.1 -13.6 13.3 19.4 -10.5 30 39 Annex B6: Key Economic Indicators (Continued) Public finance (as % o f GDP a t m a r k e t prices)' Current revenues (revenue incl current grant) 20.8 25.1 23.9 24.8 22.9 20.7 21.0 Current expenditures 27.7 28.1 26.3 24.3 23.4 21.9 21.6 Current account surplus (+)or deficit (-) -6.9 -3.0 -2.4 0.5 -0.5 -1.1 -0.6 Capital expenditure 14.5 11.9 13.3 13.2 13.7 13.9 14.2 Foreign financing (excl arrears and debt relief, incl capital grant) 2.1 2.6 5.2 6.9 7.1 -50.2 9.0 M o n e t a r y indicators M2/GDP 32.9 33.2 37.9 40.6 42.7 43.3 43.8 Growth o f M 2 (%) 20.6 5.0 25.9 20.7 8.5 6.8 6.9 Private sector credit growth / 28.8 106.1 136.2 32.9 -64.7 -36.6 219.9 total credit growth ("A) Price indices( YR86 =loo) Merchandise export price index 103.2 111.0 157.6 195.9 162.0 133.1 133.2 Merchandise import price index 198.6 219.4 238.0 292.3 252.9 249.7 260.8 Merchandise terms o f trade index 52.0 50.6 66.2 67.0 64.1 53.3 51.1 Real exchange rate (US$ILCU)' 106.9 108.1 111.4 119.2 123.2 125.3 127.3 Real interest rates Consumer price index (% change) 5.6 -0.1 4.6 10.4 3.6 2.5 2.8 G D P deflator (% change) 2.2 3.5 7.4 8.9 1.3 2.2 1.8 a. G D P at b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use o f IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units.'' An increase in US$/LCU denotes appreciation. 40 Annex B7: Key Exposure Indicators (As o f 5/6/2009) tZcItial Estimated Projected Indiwior 2005 2006 2007 2tWX 2009 2010 201 1 Total debt outstanding and 1329 1343 1384 1432 1486 820 725 disbursed (TDO) (US$m)' Net disbursements (US$m)" 14 8 -6 8 9 6 2 Total debt service (TDS) 12 12 34 13 12 12 12 (US$m)" Debt and debt service indicators ("A) TDOKGS~ 1119.8 1780.8 989.9 900.4 872.8 562.1 452.9 TDO/GDP 439.6 423.2 362.3 333.3 3 12.2 183.0 152.2 TDS/XGS 9.9 16.4 24.3 7.9 7.2 8.1 7.2 Concessional/TDO 94.0 95.0 96.0 96.0 97.0 97.0 97.0 IBRD exposure indicators (%) IBRD DS/public D S 0.0 0.0 0.0 Preferred creditor DS/public 20.8 51.5 55.0 D S (%)' IBRD DS/XGS 0.0 0.0 0.0 IBRD TDO (US$m)d 0 0 0 O f which present value o f guarantees (US$m) Share o f IBRD portfolio (%) 0 0 0 IDA TDO (US$mld 284 297 315 I F C (US$m) Loans Equity and quasi-equity /c MIGA M I G A guarantees (US$rnj a. Includes public and publicly guaranteed debt, private nonguaranteed, use o f IMF credits and net short- term capital. b. "XGS" denotes exports o f goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks; the IMF, and the Bank for International Settlements. d. Includes present value o f guarantees. e. Includes equity and quasi-equity types o f both loan and equity instruments. 41 rnmCOmaN 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N - m ln .- E Q n m c m '0 i 'F P v) m cu c - m '0 0 ln * C a E (3 (Y s n .- ln - U m 3 5 m ln 3 .- c E B m U . 4 0- ln c c cu E r 3 n .- m '0 '0 cu z cu . - L c m m d 16°W 15°W 14°W To SENEGAL To Sédhiou To To Kounkané Kolda Kolda To Sédhiou Cuntima Cambaju Bácar Bá Sare Bácar Pirada (300 m) Dungal Bajocunda Canhâmina Canhâ Canhâmina Jumbembem To Canquelifá Canquelifá Ziguinchor To Diiattakounda Farim Buruntuma Cambaju ri To m ba To Oussouye Ignoré Ignoré nja Kabrousse Ca Contuboel Camajá Camaj ábá Camajábá u To S ão Domingos São Barro che Ca Mansaina Pitchie Youkounkoun Olossato Mansabá Mansabá a b Susana Gabu Gê Varela Cacheu Olossato Mansabá Mansabá Gamamudo eu Jolmete Bissorã Bissorã To ch Ca OIO Gêba Gêba Uacaba Youkounkoun CACHEU Bafatá Bafatá GABÚ Bula Calequisse Canchungo Binar Encheia Mansô Mans ôa Mansôa B A FAT Á Cabuca Bambadinca 12°N 12°N Nhacra al Safim Galomaro ub Xime r Caió Porto Gole Porto Co Quinhámel Quinhá Quinh ámel G êb a Ganquecuta Ché Ché Ché Ché BISSAU Garfanhapa Garfanhapa Béli Béli a BIOMBO Jabed Jabedáá Co nsô rub Dulombi ATLANTIC BISSAU Enxud Ma Prá Pr Prábis ábis Enxudéé al Vendu Vendu Iljante Fulacunda Leidi Tite Tite Boé Boé ba Xitole OCEAN Ondame o G ê QUINARA Guilege ld To na Koumbia Ca Buba To Ilha de S São ão Joã Jo João ão Féfiné Caravela lha de Ilha de Bolama Quebo a Carache Ilha de Bolama e Bub Empada Saafa Caravela Formosa d To de Bénnsané Abu I. das an Galhinas o Gr Ri Arquipélago I. de Soga I. de Madina de Baixo Bedanda Gandembel GUINEA dos Bijagós BOLAMA li ba Rubane Tom Bubaque Ilha de Tombali Tombali Catió Catió TOMBALI To Ilha de I. de Boké 14°W Uno Uno Bubaque Cachamba Canogo Ilha de Balanta Songonha Roxa Eticoga Ilha de Orango Ilha de Orangozinho Cacine To Boké GUINEA-BISSAU e I. de IIlha ci n Ca Meneque Joao Vieira Campeane 11°N Ilhéu SELECTED CITIES AND TOWNS do Meio REGION CAPITALS GUINEA- NATIONAL CAPITAL BISSAU 0 10 20 30 40 Kilometers RIVERS MAIN ROADS 0 10 20 30 40 Miles RAILROADS DECEMBER 2004 IBRD 33415 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information REGION BOUNDARIES shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any INTERNATIONAL BOUNDARIES endorsement or acceptance of such boundaries. 16°W 15°W