...... . ......e U O , U,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r jijs. s~~~~~~ VOLUME/. ub -SaharanA i VA LUMEW2. Su111- S aharan A A~~ W___L_-__ Trends in Developing Economies 1995 VOLUME 3. Sub-Saharan Africa The World Bank Washington, D.C. Copyright © 1995 by the International Bank for Reconstruction anid Development /THE WORLD BANK 1818 fl Street, N.W., Washington, D.C. 20433, U.S.A. All rights reserve(d Manufactured in the United States of America First printing July 1995 This volume is a product of the staff of the Socio-Econonuic Data Division of the World Bank's International Economics Department, and the judgments made herein do not necessarily reflect the view of its Boarid of Executive Directors or the countries they represent. The World Bank does not guarantee the accur acy of the dlata included in this publication and( accepts no responsibility wlhatsoever for any consequence of their use. 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The latest e(lition is available free of charge front the Distribution Unit, Office of the Piublisher, The World Bank, 1818 11 Street, N.W., Washinigton, D.C. 20433, U.S.A., or frouim Publications, Ban(lue non(liale, 66 avenLc d'l6na, 75116 Paris, Flranlee. ISBN 0-8213-3284-8 ISSN 1014-7004 Contents Foreword ....................v Kenya .................... 101 Introduction ................... vii Lesotho .................... 107 Symbols and Abbreviations ......... .......... viii Madagascar .................... 113 Overview ................... ix Malawi .................... 118 Mali .................... 123 Angola ....................1 Mauritania .................... 127 Benin ....................6 Mauritius .................... 132 Burkina Faso ................... 11 Mozambique .................... 137 Burundi ................... 16 Niger .................... 142 Cameroon ................... 21 Nigeria .................... 147 Cape Verde ................... 26 Rwanda .................... 154 Central African Republic ................... 31 Sao Tom6 and Principe .................... 158 Chad ................... 36 Senegal .................... 163 Comoros ................... 40 Seychelles .................... 168 Congo ................... 44 Sierra Leone .................... 173 Cote d'Ivoire ................... 49 Tanzania .................... 179 Djibouti ................... 55 Togo .................... 185 Equatorial Guinea ................... 60 Uganda .................... 190 Eritrea ................... 64 Zaire .................... 195 Ethiopia ................... 71 Zambia .................... 200 Gabon ................... 77 Zimbabwe .................... 205 The Gambia ................... 81 Ghana ................... 86 T echnical Notes .................... 210 Guinea ................... 91 Classification of Economies .................... 214 Guinea-Bissau ................... 96 iii Foreword his new regional issue of extracts from Trends in nomic analyst, investor, researcher, or business person T Developing Economies (TIDE) presents brief who wants a brief and up-to-date description of recent analytical descriptions and data on recent eco- socio-economic trends in this region. This first edition nomic performance and trends in 41 economies covers most of the economies in the region; someecono- of Sub-Saharan Africa. The democratization process mies are not included because socio-economic condi- adopted in these economies is moving ahead. Despite tions were changing too fast to write with confidence economic and political hardships, reform programs have about the current situation. survived in most economies and have even been The text, tables, and graphs are the same as in the strengthened in some. Some economies are responding main TIDE book, which includes 119 developing econo- to various actions directed to strengthen regional coop- mies. The tables on each economy provide information eration. on key ratios, GDP accounts, social conditions, and This extract volume is published for the convenience international transactions. By making this information of readers who are particularly interested in the 41 widely available, the World Bank hopes to contribute to economies of Sub-Saharan Africa. Like other TIDE vol- increased understanding of the developing economies of umes this is designed as a ready reference for the eco- Sub-Saharan Africa. Masood Ahmed Director International Economic Department v Introduction his special extracts volume of Trends in Devel- For each economy the descriptive text is followed T oping Economies (TIDE) provides brief reports by tables of socio-economic indicators and graphs. on 41 Sub-Saharan African economies as of May The "development diamond" graph portrays relation- 1995. The text, tables, and graphs are derived ships among socio-economic indicators for an econ- from the main TIDE book, which includes 119 develop- omy compared with the average of the income group ing economies. TIDE complements the World Bank's to which it belongs. The other graphs also help users comprehensive country studies and annual reviews, to visualize relationships among economic indicators such as the World Development Report and Global Eco- and to facilitate comparisons among economies. Dif- nomic Prospects, which look at global and regional ferences in data between text and tables may reflect economic trends and their implications for developing the use of data of different vintages or variations in economies. definitions and concepts. The tables contain the latest TIDE draws on information from national sources available information, although it is not always com- and adds commentary on recent economic develop- parable across countries and time periods. The Socio- ments. In many instances, the data for the most recent Economic Data Division of the World Bank's years are preliminary World Bank staff estimates that are International Economics Department welcomes com- subject to revision. Although they may not conform to ments. A new product containing the full text and data data published by national authorities, the differences from TIDE and using the *STARS* is also available are generally not considered analytically significant. on diskette and CD-ROM. However, readers should pay careful attention to the Readers interested in more detailed descriptions of provisional character of the data and commentary re- the economic indicators should refer to other World ported here. Bank publications, notably World Development Report, The text is concerned mainly with current events and Global Economic Prospects, World Tables, and World the recent past of each economy. It places events in Debt Tables. The statistical tables and notes in these context by bringing out the distinguishing charac- publications are available on diskette, using the teristics of an economy, its problems and prospects, and *STARS * retrieval system. A CD-ROM containing data the principal elements of its development strategy. and material from many of these publications will be While the choice of topics may vary from one economy released shortly. Readers interested in more comprehen- to another, several themes recur: government initiatives sive country studies should write to the Distribution Unit, in progress or under consideration, economic and social Office of the Publisher, 1818 H Street, N.W., Washington, factors affecting development, and external finance and D.C. 20433, U.S.A. for a copy of the World Bank's Index debt issues. of Publications. Vil Symbols and Abbreviations Data not available or nonexistent 0.0 Zero or less than half the unit shown AIDS Acquired immune deficiency syndrome c.i.f. Cost, insurance, and freight f.o.b. Free on board GATT General Agreement on Tariffs and Trade GDP Gross domestic product GNP Gross national product CFAF Communaute Economique Africaine (franc zone) LIBOR London interbank offered rate MPLA Popular Movement for the Liberation of Angola nfs Nonfactor services NGO Non-government organization UNDP United Nations Development Programme UNITA the Union for the Total Independence of Angola viii Overview he rise in commodity prices in 1994 (particularly Prudent management of near-term windfall gains to for coffee, cocoa, cotton, and metals) is the most strengthen stabilization and structural reform policies 19 important external factor in Sub-Saharan Af- will be crucial if they are to contribute to higher long- rica's near-term outlook. Beverages account for term growth in Sahelian countries. But if. as in the more than a third of export earnings in ten African 1970s, temporary price increases are mistaken for per- countries, and cotton a quarter or more in Sahelian manent ones and lead to weaker commitment to reform countries, such as Benin, Burkina Faso, Chad, and Mali. and large increases in inefficient public spending and Exporters of copper (Zaire, Zambia), bauxite-alumina external borrowing, the commodity price boom could (Guinea, Sierra Leone), and gold (Ghana, Mali) will also lead to even worse long-term growth performance than gain from price increases. if it had not happened. The rise in prices is expected to be temporary, how- More often than not, countries have failed to follow ever, the result of transitory supply shocks and normal the rational course. In earlier price booms (e.g., C6te cyclical forces whose influence is expected to fade over d'Ivoire in the 1976 coffee boom), beneficiaries have the next one to two years, with real prices in 2005 no tended to consume much of the windfall and to increase higher than in 1990. But even a flat long-run trend would investment predominantly at home, most often in large be better than the 3.6 percent a year fall in regional terms public sector projects with low rates of return. Countries of trade in 1981-93, which generated annual income that consume rather than save windfalls and that invest losses worth 0.9 percent of GDP. In 1994-2004 the terms the windfall disproportionately at home rather than re- of trade are expected to rise a marginal 0.3 percent a duce foreign debt or invest abroad can penalize them- year, generating income gains of 0.1 percent of GDP a selves in three ways. They adopt an unsustainable year. The swing between the two periods of I percent of pattern of consumption. They obtain low returns on GDP a year would make an important contribution to investment and fail to diversify their assets. And they improving growth conditions for the region. tend to suffer from "Duthch disease," where the real Export demand should also improve with recovery in exchange rate appreciates and the growth of tradables is Europe-which takes half the region's exports-and stunted, compromising the role international trade can more competitive real exchange rates. Adjusting coun- play as an engine of growth and innovation for the whole tries outside the CFA zone that have carried out and economy. maintained real devaluations since the mid-1980s expe- The very modest economic growth of recent years is rienced export growth of about 4.5 percent a year in reflected in the performance of the region's social indi- 1987-93 and a rise in GDP growth from near zero in the cators, especially those for women and children, who first half of the 1980s to 4 percent. Export and output make up a large proportion of the disadvantaged popu- growth in the CFA-zone countries is expected to benefit lation. The total fertility rate declined marginally, from significantly from the 50 percent devaluation (in foreign 6.4 births per woman in 1987 to 6.2 births in 1993, a currency terms) of the CFA franc in January 1994 and drop of three percentage points; female primary enroll- the associated debt relief and external financing pro- ment increased correspondingly by 3 percent, from 58 grams, if they are adequately supported by reduction of in 1987 to 60 in 1992. This compares unfavorably with large budget deficits, monetary discipline, and structural low income countries, where fertility declined by over reforms of public enterprises, the financial sector, and 12 percent and primary enrollment increased by 9 per- the trade and regulatory regimes. Progress in this regard cent in the same period. While childhood immunization is mixed. The adverse impact on African exports of the against measles increased more substantially, from 35 erosion of tariff preferences under the Uruguay Round percent in 1986 to 50 percent in 1992, only half the isestimatedtoberelativelysmall.Africanexportgrowth population has access to health care, leaving the poor is expected to pick up to 4 percent a year in 1995-2004, particularly disadvantaged. For the poorest countries in from 2.8 percent in 1985-94. the region, the move is alarming, with 17 percent less of ix the population having access to health services in 1990 percent and was expected to reach 1.3 billion by the year than in 1985. 2025. From the governments' point of view, the already Improvements in living standards and poverty reduc- overburdened capacity to render social services is being tion therefore continue to pose a challenge for govern- further stressed. The strategy for poverty reduction there- ments. Sub-Saharan Africa has a large-and fore should be based on increasing the rate of economic growing-proportion of its population living below the growth and enhancing opportunities and social services. poverty line; between 1985 and 1992, the number of Investment in women's education and promotion of their poor rose by almost 1.5 percent. This is further exacer- access to productive resources is particularly likely to bated by the high rate of population growth in many pay large dividends both by promoting economic growth countries. In 1993, the population was growing at 2.9 and by reducing population growth. Sub-Saharan Africa forecast summary Growth rates (percent per year) 1985-90 1990-94 1995-2004 GDP 2.4 0.8 3.8 Consumption per capita -1.7 -1.7 1.2 GDP per capita - 0.6 -2.0 0.9 Export (GNFS) volume 3.1 2.2 4.0 Median inflationa 10.2 9.0 8.0 Foreign reserves ($billions) 7.7 11.8 18.2 a. GDP deflator. Source: World Bank estimate. Angola ngola is the fifth-largest country in Sub-Saha- mental degradation. Nonoil per-capita GDP has declined ran Africa, and its population of about 11 steadily in real terms since 1975. From a net exporter of million is growing at 2.8 percent a year. Popu- agricultural products, Angola has become increasingly lation density is low at 8 inhabitants per square dependent on food imports to supply its urban popula- kilometer. GNP per capita was estimated at $600 in tion, while much of its fertile land lies fallow. Skilled 1992. Its rich natural endowment includes petroleum, labor and managerial talent are scarce. Infrastructure has diamonds, and other mineral resources, abundant arable been ravaged by war and neglect. land, a diversified climate that favors a wide variety of Angola's war economy has been fueled by the growth agricultural crops, cattle, and fisheries, and consider- of the oil industry, whose output increased 6 percent a able hydroelectric and irrigation potential. Before year between 1973 and 1993 to over 500,000 barrels a independence in 1975 Angola's infrastructure was rela- day, and exploitation of diamonds. Over 1991-93, oil tively well developed; it has deteriorated substantially exports generated over 90 percent of Angola's export because of lack of maintenance and damage from the revenue, equivalent to about $300 per capita. Oil reve- war. Angola has suffered from armed conflict for three nue financed the government's war effort and met the decades, first in the struggle for independence and basic needs of the urban elite, mostly public-sector em- subsequently in a long and destructive civil war be- ployees. The government has used central planning and tween the Popular Movement for the Liberation of administrative controls to manage most of the modern Angola (MPLA), and the Union for the Total Inde- economy. The rest of the economy, including diamond pendence of Angola (UNITA). The transition to a mining, has relied on informal activities. Most farmers democratically elected government, initiated after a have reverted to subsistence. cease-fire in May 1991, was derailed by renewed fight- Angola had a command economy from 1975 through ing soon after elections in the fall of 1992. In November 1991. Several economic reform programs formulated 1994 the MPLA-led government and UNITA signed a between 1987 and 1990 were not implemented. Admin- new peace agreement. istered exchange rates, prices, and interest rates resulted Angola's economic growth after World War II was in large distortions, uneconomic use of resources, and stimulated by investment in coffee plantations that made lack of transparency. Nonoil investment and exports it the world's fourth largest coffee exporter by 1974, and were discouraged, and traditional agricultural exports oil production, which started in the late 1950s and virtually disappeared. Persistent large public sectordefi- reached 144,000 barrels a day by 1973. From 1960 cits, particularly after 1985, were financed through through the end of the colonial period in 1974, GDP money creation, fueling inflation. The 1991 budget defi- growth averaged about 8 percent a year in real terms. cit was equivalent to 23 percent of GDP, and inflation Economic opportunities attracted Portuguese settlers, reached 175 percent. Given a fixed exchange rate whose number rose from 40,000 in 1940 to 340,000 in pegged to the dollar, the new kwanza quickly appreci- 1974. The benefits of growth, however, were not equally ated, and by 1991 it commanded only 17 percent of its distributed. A significant proportion of the rural popula- official value on the parallel market. The overvaluation tion was employed in the plantations, mines, and facto- of the kwanza severely distorted relative prices, encour- ries until 1961 under a system of forced labor and, after aged excessive unproductive imports and capital-inten- that, at very low wages. The vast majority of Angolans sive investment, and led to increasing failure to meet lived in poverty, and social indicators were below re- domestic demand for most goods and services. Excess gional averages. demand for foreign exchange was curtailed through The armed struggle for independence, the subsequent administrative controls. Government policies encour- exodus of most Portuguese settlers, civil war, and mis- aged consumption through widespread consumer price guided economic policies led to a drastic contraction of subsidies and remunerating civil servants in kind by output, deteriorating social standards, and environ- granting them access to rationed goods, partly in lieu of I Angola cash payment of wages. A relatively small proportion of 1994 monthly inflation rose steeply to about 58 percent, the population thus appropriated the bulk of consumer and the reform process appears to have lost momentum. goods, including imports, at prices substantially below market. Similarly, state-owned enterprises sold part of Social Indicators their production at below-market prices to their employ- ees. Public employees traded these underpriced goods Angola's social indicators declined as a result of the on the parallel market for food and consumer goods civil war, inappropriate public expenditure policies, unavailable in state stores. rapid rural migration, and emigration of skilled man- power. Life expectancy at birth was estimated at 46 Recent Economic Developmentsy years in 1990; the infant mortality rate was 129 per 1,000, less than 30 percent of the population had access The government tried several policy measures over to health services and safe water, and the adult literacy 1991-93 to reduce price distortions and improve the rate was 42 percent. The regional disparity in social incentive framework, but they were not complemented conditions is substantial. Rural poverty is acute, due to by fiscal and monetary restraint and were sometimes disruption of production, interruption of trade with ur- reversed. The exchange rate was devalued by a cumula- ban areas and between regions, shortage of traded tive 92 percent in foreign currency terms through Feb- goods, and lack of access to social services. Women's ruary 1993, from NKz 580 to NKz 7,600 to the dollar, access to basic educational opportunities has been ex- with the latter figure determined by a pilot auction of panded; their literacy rate, although low at 28 percent in foreign exchange as a step toward unification of ex- 1989, is higher than before independence. Women are change rates. Commercial banks were authorized to well represented in the civil service and hold senior trade foreign exchange at rates close to the parallel positions. market rate, in-kind compensation of public employees was replaced wi h monetary wages, producer and con- sumer price controls were eased - with the notable exception of utilities, petroleum products, and essential Angola initiated a process of national reconciliation in commodities - and profit margin controls were re- 1991 and replaced its single-party system with a demo- moved from all but 25 goods and services, including cratically elected government. In May 1991 MPLA and common medicines, agricultural tools, utility rates, and UNITA signed a comprehensive peace agreement medi- petroleum products. The partial reforms were largely ated by Portugal, the United States, and the then Soviet derailed by the inflationary impact of fiscal deficits that Union and assisted by about 600 United Nations were over 38 percent of GDP in 1992 and 21 percent in peacekeeping troops. The agreement set adetailed time- 1993. Inflation was about 500 percent in 1992 and 1,800 table for demobilization, creating an integrated national percent in 1993. Moreover, the government reintro- army and multiparty elections. duced a fixed dollar exchange rate, set at NKz 4,000 in Despite some delays, the peace process was generally April 1993. and NKz 6,500 in November. The gap on track until the elections in September, although de- between official and market exchange rates widened mobilization of the MPLA and UNITA armies was well again as the kwanza fell to NKz 106,000 to the dollar at behind schedule. The new national army, with a purely year's end in the parallel market. defensive mission, was formally established and began In 1994 the government proposed stabilization meas- to be organized under the guidance and direct assistance ures within a framework of economic, legal, and insti- of Portugal, France, and Great Britain, although genuine tutional reform. The program aimed to cut the fiscal integration of the opposing forces was not successful. deficit and to reduce monthly inflation from 30 percent Elections for the National Assembly and the first in January to 2 percent by December 1994. Fiscal targets round of presidential elections were calm and orderly, implied major cuts in government spending and were set and were monitored by the United Nations and other with the expectation of additional official and private external observers, who pronounced them fair. With external capital flows. The program envisaged quick over 90 percent of registered voters participating, the introduction of market mechanisms to replace adminis- government party received 53.7 percent of the votes cast trative controls, including removing most remaining for the National Assembly, the rebel party 34.1 percent, price controls and subsidies, and privatizing some state the balance was divided among 16 other parties. As no assets. Program results were mixed: real 1994 GDP presidential candidate obtained an absolute majority, a growth is estimated at 5 percent: inflation at 900 percent second ballot was needed to choose between the two (about half the 1993 rate) and the ratio of the parallel front-runners. market exchange rate to the official rate was reduced to UNITA refused to accept the outcome of the elec- 3:1 from 16:1 at the end of 1993. However, in December tions. moved its headquarters from Luanda to Huambo. Angola Angola's second largest city; withdrew from the Uni- near future the cost of demobilization and reintegration fied National Armed Forces; and resumed fighting. It of excess military personnel, de-mining and infrastruc- gained control of large parts of the country but lost ture rehabilitation, administrative and civil service re- much of it in 1994. There was considerable interna- form, and other structural measures will be high. During tional pressure on both sides to make peace. A UN- the transition period, Angola will face a saving gap brokered peace initiative was successfully concluded in projected at 7 to 8 percent of GDP, assuming reschedul- Lusaka in November 1994 with the signing of new ing of substantial external arrears under favorable con- peace accords. ditions. Medium-Term Outlook External Debt Angola requires durable peace and firm commitment to Angola's long- and medium-term external debt at end- economic stabilization and structural adjustment to de- 1994 was estimated at $9.6 billion (excluding interest velop its considerable economic assets; it has the poten- arrears and moratorium interest), of which 55 percent tial for sustained growth with equity and economic was owed mostly to the former Soviet Union, China, diversification, and could aspire to triple its per capita Cuba, and Eastern European countries; 38 percent to income in one generation and join the group of middle- Western bilateral creditors; and 7 percent to multilateral income countries. agencies. Over half of the debt is war-related. In June Angola's economy could grow at 6 to 7 percent a year 1989 the then Soviet Union rescheduled its loans, in- through further growth of petroleum and mineral pro- cluding arrears and maturities falling due through 1990, duction, the recovery of agricultural production, and on favorable terms, and that July the Paris Club resched- selective industrial development. During a transition uled nearly $550 million in arrears and maturities falling period of five to eight years, Angola would need consid- due through September 1990; other Western creditors erable external support, including extensive debt re- have rescheduled their debt on similar terms. The re- structuring and relief. Reduced public spending maining maturity profile, however, is unfavorable for resulting from peace and fiscal restraint could increase the medium term; unless restructured, debt service obli- total saving from about 11 percent of GDP in 1994 to 18 gation over 1995-97 (including penalty interest but be- percent of GDP by the beginning of the next decade. fore clearing of arrears) would absorb about half of While the peace dividend could be substantial, in the projected exports of goods and services. 3 Angola Population mid-1993 (millions) 10.3 Income group: Lower-middle GNP per capita 1993 (US$) .. Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investnnt to GDP ratio (%) Gross domestic investmentVGDP 17.8 11.7 20 Exports of goods and nfs/GDP 32.9 38.9 Gross domestic savings/GDP 22.0 26.8 Gross national savings/GDP 20.4 18.7 10 Current account balance/GDP 3.0 -2.3 Interest payments/GDP 0.4 0.9 Total debt/GDP 36.4 78.0 . Total debt/exports 102.8 200.9 238.8 336.6 . 8 0 91 92 93 94 GDP: PRODUCTION (%/. of GDP) 1985 1990 1992 1993 1994 Shars o GDP by setlor (%) Agriculture 13.4 17.9 1.. Industry 42.9 40.7 Manufacturing 9.6 5.0 Services 43.7 41.4 1985-90 1990-94 1992 1993 1994 so (average annual gromwth) Agriculture 0.5 Industry 6.4 Manufacturing -11.1 Services 1.8 .. .. 0 88 89 90 91 82 93 94 GDP 3.5 -6.3 2.7 -22.6 *Agrkculture MIndustry 0 Sir1es GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growthrat" ofGDland GDP (%) Prvate consumption 47.0 44.7 .. General govemment consumption 31.0 28.5 Gross domestic investment 17.8 11.7 Exports of goods and nfs 32.9 38.9 Imports of goods and nfs 28.7 23.8 90 91 92 94 1985-90 1990-94 1992 1993 1994 (average annual growth) 10 Pnvate consumption -0.6 General govemment consumption 2.1 .1 / Gross domestic investment -6.8 .. Exports of goods and nfs 14.7 ..20 Imports of goods and nfs 1.2 .. Gross national product 2.0 .. . Gross national income 1.1 .- 1GDI - GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 [Changeof GDP delatorandCPI (%) Domestic prices 16 (% change) 14 Consumer prices -- - *- 102 Wholesale prices -- -. .. 8 . Implicit GDP deflator . 11.0 .. .. .. 6 4 Government finance 2 (% of GDP) 0 Current budget balance -1.3 -14.2 .. .90 91 92 93 94 Overall surplus/deficit .l .. .. -GDP def. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 4 Angola POVERTY and SOCIAL (annual growthrates)1985-90 1990-94 r Development dlamond Population 2.8 3.7 Life expectancy Labor force 1.9 2.1 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 47.0 per primary Infant mortality (per 1,000 /ive births) 121.6 capita enrollment Child malnutrition (%6 of children under 5) 20.0 Access to safe water ('Y of population) 37.6 Energy consumption per capita (kg oil equivalent) 95.9 1 Illiteracy (% of population age 15+) 58.3 Gross primary enrollment (% of school-age population) 91.0 Access to safe water TRADE (millions US$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 2,301 3,884 3,833 2,783 4.000 Other fuel 1,946 3,525 3,490 2,688 3.500 Diamonds 74 242 250 15 _ Manufactures .. -. Total imports (cif) 1,402 1,578 1,988 1.388 2500 Food .. .2,000 Fuel and energy .. . . . . 1 50 Capital goods .. .. .. .. .. i o Export price index (1987=100) . . . 0 Import price index (1987=100) 1 L i L _l l Terms of trade (1987=100) as 89 90 91 92 93 94 Openness of economy (trade/GDP/%) 62 63 a Exports IM Imports BALANCE of PAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GDP rtlo (%) Exports of goods and nfs 2,408 3,992 3,978 2,858 0 Imports of goods and nfs 2,095 3.395 4,087 3,278 95 19 90 SI 92 93 94 Resource balance 313 597 -109 -420 . 1 Net factor income -130 -755 -824 -707 -2 Net current transfers 21 -77 102 132 Current account balance 43 Before official transfers 204 -235 -831 -995 After official transfers 204 -235 -831 -995 4. Long-term capital inflow 454 -608 -447 -470 Total other items (net) -637 807 1,427 1,189 Changes in net reserves -21 37 -150 276 Memo: Reserves excluding gold (mill. US$) .. .. Reserves including gold (mill US$) . . . . . Conversion rate (local/US$) 29.9 29.9 457.0 4,832.0 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%) Long-term debt/exports 75.3 177.7 189.6 269.4 1OD IMF credittexports 0.0 0.0 0.0 0.0 Short-term debt/exports 27.5 23.1 49.2 67.2 Total debt service/exports 6.4 7.5 6.2 5.3 75 13 PNG GDP ratios U PMv. Long-term debt/GDP 26.7 69.0 0 . .. . Onf. IMF credit/GDP 0.0 0.0 Short-term debt/GDP 9.7 9.0 Long-term debt ratios Prvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 ° , I Private creditors/long-term 84.1 55.7 58.2 59.2 60.1 1 S9 90 91 92 93 94 Official creditors/long-term 15.9 44.3 41.8 40.8 39.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 5 Benin enin is a country of more than 5 million people overall balance of payments ended in a surplus estimated with a 1993 GDP of about $2.2 billion. Its econ- at $78 million, despite a shortfall in external disburse- omy is highly open and strongly dependent on ments from 1993 levels. Against this positive outcome, primary and tertiary activities. The primary sec- serious concern remains about inflation, which reached tor, which accounts for 33 percent of GDP, provides an annual average rate of 29 percent in 1994. Benin's largest export commodity: cotton. A large The objectives of the reinforced adjustment strategy tertiary sector dominated by commerce accounts for include accelerating real GDP growth to 5 to 6 percent 53 percent of GDP, and Benin's dynamic re-export from 1995 onward, further reducing domestic and exter- activities provide about 45 percent of export reve- nal imbalances to attain sustainable balance of payments nues. A small secondary sector accounts for about 14 and budgetary positions and enable Benin to be less percent of GDP. dependent on foreign assistance. alleviating poverty and A new constitution was approved by referendum in improving basic social services, rehabilitating social December 1990 and multiparty legislative and presiden- and physical infrastructure, and improving human re- tial elections were held in February-March 1991. Legis- sources. A broad tax reform is simplifying the tax sys- lative and presidential elections are scheduled for 1995 tem, broadening the tax base, and improving the tax and 1996. administration. After the corporate profit tax rate was After nearly two decades of state-led development, reduced from 48 to 38 percent, a single rate value-added Benin embarked in 1989 on an ambitious economic tax of 18 percent covering most goods and services was reform program, supported by IDA and the IMF, and the introduced in 1991. In 1994 the government extended new government attempted to deepen the reforms and the VAT to the telecommunications sector, petroleum strengthen adjustment efforts through a second phase products, and the retail trade. A single business tax and reform program over 1991-93. a unified real estate tax were introduced, and the mini- mum turnover presumptive tax was eliminated. Recent Economic Developments External trade reform included removing quantitative Recent Economic Developments restrictions and simplifying import tariffs. In 1993 re- Together with its partners in the CFAF zone, Benin maining import licensing was removed, and in January devalued the CFA franc from CFAF 50 to CFAF 100 to 1994 the tariff structure was simplified from 12 rates to the French franc in January 1994. By increasing Benin's 4 and the system of reference values was eliminated. In external competitiveness this measure strengthened the fiscal 1996 the government intends to extend VAT cov- ongoing adjustment program. which had already shown erage to sugar and cement, modify the graduated tax on encouraging results over 1990-93. wage income and revise the personal income tax by In 1994 real GDP growth is estimated to have reached lowering the rates and reducing the number of brackets, 3.4 percent, mainly as a result of the strong performance reduce to a minimum the number of products subject to in the cotton subsector, a recovery of textile production the zero import tariff rate. tighten the system of exemp- supported by new export opportunities, and higher con- tion from VAT and customs duties under the investment struction activity. The primary current budget surplus code, eliminate special import tariff exoneration re- rose to 2.8 percent of GDP. and the overall budget deficit gimes, and improve customs administration. (on a commitment basis, excluding grants) to the equiva- Deregulation measures have also progressed. Al- lent of 6.6 percent of GDP. As a result of increasing though price controls were lifted for most commodities export revenues and adecline of volume imports follow- in 1991 and the state monopoly on domestic trade was ing the CFAF devaluation, the current account deficit dismantled, the government introduced a list of addi- (before grants) fell from 7.5 percent of GDP in 1993 to tional temporary margin controls after the CFAF devalu- 3 percent of GDP in 1994. Reflecting this strong per- ation. The government plans to eliminate them; limit formance and an increase in private capital inflows, the price controls to petroleum products and bread: and 6 Benin price homologation to water, electricity, schoolbooks, unified presentation for the budget. Despite improve- pharmaceuticals, and cement in 1995, before proceeding ments in programming and monitoring, project execu- to their total elimination in a second stage. Proposed tion and implementation remain problematic. laws would also give more flexibility and incentives to private-sector activities. Poverty and Social Indicators Public enterprise reform was initiated in 1989, and the number of enterprises in the state portfolio was Despite poor social indicators, the policies implemented brought down from 45 in 1989 to 32 - including 20 under the adjustment program have improved living commercial and industrial enterprises and 12 adminis- standards. Real GDP per capita increased at an averaue trative agencies-in 1993. The government is commit- annual rate close to I percent over 1991-94 and is ted to complete divestiture of eight more enterprises in expected to grow about 2.5 percent a year from 1995. 1995, and defining a divestiture strategy for two textile Higher cotton producer prices and production increases firms. Subject to agreement with the Nigerian govern- have raised income among the rural population. particu- ment, two companies jointly owned with Nigeria will be larly after the CFAF devaluation. also privatized. The government intends to convert the The reinforced structural adjustment program. in cotton processing and marketing company into a mixed- conjunction with the policy reorientation in key sectors capital company by opening its capital initially to cotton such as health, education, rural development. and infra- farmers. The National Palm Oil Company's industrial structure, will continue playing an important role in units are to be restructured this year and divested in reducing poverty. Increased budget allocations for 1996. Finally, the governmentwill implementaliberali- health, education, and road maintenance in 1995 will zation strategy for the petroleum sector by selling 75 contribute to improving the living conditions of the poor percent of distribution outlets, transferring the manage- by increasing access to basic social services anci de- ment of storage installations to private companies, and creasing the cost of marketing. Other specific actions privatizing transport. include a community-based food security project. which Public expenditure reform aims at improving the will contribute to reducing the vulnerability of the rIlral structure of current expenditures to provide adequate population particularly at risk, and two labor-intensive allocations for essential services, particularly in primary public works programs to create emplovymient. espe- health, education and basic infrastructure maintenance, cially in urban areas. decreasing the share of personnel expenditure relative to operating and maintenance expenditure, and eliminat- ing domestic arrears by 1996. Monetary policy, pursued in the framework of the Western Africa Economic and Economic growth in Benin should reach 5 to 6 percent Monetary Union, aims at limiting increases in domestic from 1995 onward, significantly above the population prices and, through a policy of tight credit to the gov- growth rate of 3 percent. assuming continued strong ernment. providing adequate room for increasing credit performance of the cotton sector and an overall increase to the private sector. Progress has been made in recov- in the gross investment rate from 13.9 percent of GDP ering liquidated bank assets and reimbursing depositors, in 1993 to 17 to 18 percent of GDP in 1999.The agricul- and five private banks are now operating in Benin. The tural sector will remain tile maini source ot growth. with government intends to continue programs to improve the efficient cotton subsector leading the expansion. the legal framework for financial activities, increase Efforts to rehabilitate and liberaiize the subsector will competition among financial institutions and improve concentrate on expanding private ginning and storage financial intermediation, and improve the rural credit capacity, and promoting greater private-sector participa- network and adopt regulations for mutual credit and tion in processing and marketing activities to increase saving institutions. competition. Improved regional competitiveniess antd The government is overhauling the public admini- efficient input supply should enhance the growth pros- stration by reorganizing three key ministries, streamlin- pects of food crops, f ruits, and vegetables Eff'orts to ing personnel and strictly limiting new hiring. It has diversify agriculture production will also be intensifietd audited five other organizations and is studying reor- by improving extension and private sector marketine ganization of the remaining ministries as a basis for a and export activities. long-term strategy for administrative reform. Action The secondary sector is projected to grow about 6 plans for the audited ministries are expected to be percent a year over 1995-99. based on substanliallv adopted before the end of 1995. improved export prospects following the levaluationl. 'I'he government has also introduced measures to Efficient production growth will be fostered by futhler improve economic managemnent. The budgeting process privatization and restructuring of public-sector entel- improved with the a(loption of new procedures and a prises, fiscal reforms, and a revision of the regulatory 7 Benin framework. These measures, combined with increased savings as a result of renewed confidence in the political competitiveness in the regional transit trade and imple- and economic situation, improved fiscal management, mentation of a new transport strategy, should also bene- and more opportunities for investment. fit tertiary sector activities, which are projected to grow Improvements in the current account balance are by about 5 percent annually during the period. expected to come from continued strong perl ormance of Achieving the projected growth rates will require cotton exports and expanding re-export activities as increases in private investment from an average of 6 regional competitiveness is restored. The current ac- percent of GDP over 1990-93 to about 8 percent of GDP count deficit, excluding official grants, is expected to from 1995, increase in public investment from 7 percent remain below 5 percent from 1995. Export receipts, to about 9 percent of GDP in 1995-99, and qualitative including re-exports, are projected to grow about 9 improvements in preparing and executing public invest- percent a year over 1995-99. Reflecting mainly an in- ment projects. Domestic savings are estimated to have crease in capital goods imports consistent with the pro- increased from 4 percent of GDP in 1993 to 9 percent of jected investment growth, the value of imports, GDP in 1994, and are projected to grow to 12 percent of including re-exports, is projected to grow by about 8 GDP by 1999. reflecting increases in public and private percent a year for the period. Benin Population mid-1993 (millions) 5.1 Income group: Low GNP per capita 1993 (US$) 430 Indebtedness level: Moderately indebted KEY RATIOS 1985 1990 1992 1993 1994 Inveatmentto GDP ratio (%) Gross domestic investment/GDP 8.9 14.2 13.8 14.3 19.6 20 Exports of goods and nfs/GDP 34.4 21.8 23.3 22.1 26.9 Gross domestic savings/GOP 0.8 5.5 3.9 3.5 9.4 I Gross national savings/GOP 4.7 8.0 5.0 6.0 11.0 10 Total debt/GDP 78.1 66.4 63.3 70.0 101. _________________ Total debt/exports 203.2 245.2 218.9 256.3 381.2 9 89 90 91 92 93 94 GDP: PRODUCTION (% of GOP) 1985 1990 1992 1993 1994 Shares of GDP by sector (%) Agriculture 31.9 36.1 36.7 35.8 34.2 100 Industry 16.7 13.2 12.7 12.9 12.3 I | Manufacturing 7.6 7.8 7.8 7.8 7.5 Services 51.3 50.7 50.6 51.4 53.4 1985-90 1990-94 1992 1993 1994 s0 (average annual growth) Agriculture 4.0 4.9 2.9 1.8 9.7 Industry -2.6 3.5 4.8 4.4 4.1 Manufacturing 5.0 5.3 11.6 2.4 3.9 Services -0.5 3.5 5.0 4.1 0.3 o 88 89 90 91 92 93 94 GDP 0.8 4.1 4.2 3.2 4.4 N Agriculture il Industry 0 Services GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Private consumption 83.8 81.3 84.2 84.9 82.0 20 General govemment consumption 15.4 13.2 11.9 11.6 8.5 1A Gross domestic investment 8.9 14.2 13.8 14.3 19.6 Exports of goods and nfs 34.4 21.8 23.3 22.1 26.9 10 Imports of goods and nfs 42.5 30.5 33.2 32.9 37.1 1985-90 1990-94 1992 1993 1994 0 @ 1 (average annual growth) 1 \ 1 90 91 92 93 94 Private consumption 0.0 3.3 1.7 3.6 0.3 -/ General govemment consumption -3.8 -1.2 -2.1 -0.8 1.0 Gross domestic investment 3.1 12.1 15.1 13.2 19.8 ' Exports of goods and nfs -8.7 1.9 12.9 -2.2 -11.7 .1 \ Imports of goods and nfs -8.9 2.0 4.4 3.1 -11.7 Gross national product 0.7 3.9 2.9 4.3 3.4 2 Gross national income -0.1 3.8 0.6 4.4 4.8 -GDi GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 35 - (% change) 30 / Consumer prices 25 Wholesale prices .. .. .. .. 20 Implicit GDP deflator -4.9 1.4 2.9 1.6 34|5 1s Government finance 5 (% of GDP) , Current budget balance -4.7 -4.1 -2.1 -0.2 -1.6 5 89 90 91 92 9 Overall surplus/deficit .. -10.5 -9.0 -3.1 -5.4 -GDP def. -*-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 9 Bteiin POVERTY and SOCIAL (annual gmowth rates) 1985-90 1990-94 Development diamond Population 3.0 3. 1 Ufe expectancy Labor force 2.2 2.5 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 47.8 per prmary Infant mortality (per 1,000 live births) 84.6 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 50.3 Energy consumption per capita (kg oil equivalent) 20.4 4 Illiteracy (% of population age 15+) 76.6 Access to safe water Gross primary enrollment (% of school-age population) 66.0 TRADE (millions US$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 298 287 362 341 301 6s Fuel 66 73 95 73 121 Cotton 42 7 9 9 12 Manufactures 400 Total imports (cif) 384 503 561 540 366 Food 126 78 3 Fuel and energy 6 42 Capital goods 72 157 Export price index (1987=100) 89 79 109 101 93 IO Import price index (1987=100)97 7 12 8 100 Terms of trade (IWert00) 92 81 89 85 87 ea 55 90 91 92 93 94 Openness of economy (trade/GDP, %) 77 52 56 55 64 0 Exponis m Impons BALANCEofPAYMENTS (millions US$) 1 199 1992 1993 1994 Current account balance to GDP ratlo (%) Exports of goods and nfs 360 402 514 479 405 0 o 90 9 - 93 Imports of goods and nfs 444 563 719 691 477 1 ss ss srj 9 2193 Resource balance -85 -161 -205 -212 -72 | | Net factor income -21 -39 -62 -40 -41 t Net current transfers 62 86 95 94 65 :31 | Current account balance l Before official transfers -44 -114 -172 -158 -48 -s | After official transfers -15 -56 -40 -14 36 Long-term capital inflow 32 88 48 47 146 Total other items (net) -31 26 84 3 -67 I1 Changes in net reserves 14 -58 -91 -36 -115 8 Memo: Reserves excluding gold (mill. US$) 4 65 245 244 Reserves including gold (mill. US$) 8 69 249 248 Conversion rate (local/US$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure ofexternal debt(%) Export ratios Long-term debt/exports 164.7 231.6 211.1 242.9 365.4 1°_ IMF credit/exports 2.8 3.6 3.4 7.4 10.6 Short-term debt/exports 35.7 10.0 4.4 6.0 5.2 5 Total debt service/exports 12.2 7.7 4.1 5.8 18.0 OPNG GOP ratios _a PMt| Long-term debt/GDP 63.3 62.7 61.0 66.3 97.2 | a O"n. IMF credit/GDP 1.1 1.0 1.0 20 28 Short-term debt/GDP 13.7 2.7 1.3 1.6 1.4 Long-term debt ratios Prvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed : ° Private creditors/long-term 47.8 2.0 0.4 0.3 0.0 - U 90 91 52 93 9 Oificial creditors/long-term 52.2 98.0 99.6 99.7 100.0 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing. the diamond will be incomplete. 10 Burkina Faso urkina Faso is a resource-poor landlocked coun- development. However, the external competitiveness of try in a transitional zone between the Burkina's production remained low. Despite the January Sudano-Guinean regions and the Sahel. Al- 1994 devaluation of the CFA franc, further direct cost- though fragile, soils are comparatively fertile. reduction measures are needed if domestic producers are The majority of Burkina's population of roughly 10 to contribute to a reduction of the sizable external trade million (nearly 90 percent rural) depends mainly on deficit. agriculture, both crops and livestock. Annual population Regional market development and economic integra- growth of almost 3 percent is creating severe pressure tion are of great importance for Burkina's economy. on arable land. Social indicators, such as primary school Roughly one-fourth of Burkina's recorded external trade enrollment, access to health services, and life expec- is intraregional, the highest proportion among Sahelian tancy, are among the lowest in the world. Per capita GNP countries. In addition, worker's remittances received is estimated at $300 in 1993. from Burkinabe working abroad, mostly in C6te Burkina's economic performance has been limited by d'Ivoire, account for $150 million annually, equivalent several serious constraints: high population growth and to 5 percent of GDP. related environmental and socioeconomic problems, its dependence on rainfed agriculture and hence vulnerabil- Recent Political Developments ity to drought, an inadequate and fragmented economic infrastructure, and what was until four years ago a highly Burkina's present political environment may prove to regulated and distortionary economic environment dis- have a very positive effect on development if the prag- couraging private investment and exports. matic, less ideological approach to economic manage- Most of the labor force is occupied in the primary ment continues. Burkina has undergone a major political sector, which accounts for about 40 percent of GDP. The transformation in the recent past. Since October 1987 service sector has expanded to provide about 37 percent the authorities have followed a process of "rectification" of GDP. In the secondary sector, the contribution of of the previous regime's revolutionary socialist ideas. mining to GDP is relatively small, but increasing rapidly This move toward greater political openness and democ- with the expansion of gold mining, after cotton now the ratization of power has continued and is embodied in the country's second biggest source of export earnings. new constitution. Multiparty legislative elections took Other mining activities, such as zinc, also have poten- place in May 1992, and the new parliament started work tial. Informal activities permeate Burkina's economy in in October 1992. These political developments are cou- all sectors. pled with a more pragmatic and liberal approach to Until recent reforms, cumbersome regulations, a re- economic management. strictive trade regime, price controls. and widespread government involvement in productive sectors discour- aged private investment. These factors impeded the de- velopment of the domestic banking sector and private In spite of the handicaps constraining its economic per- enterprises in all formal sectors of the economy. Without formance, Burkina Faso recorded in the 1980s a growth the dynamism of the informal sector, the size and impor- rate that was sufficient to raise per capita incomes and tance of which is inadequately estimated, economic consumption slightly, as real GDP grew by 3.5 percent growth would no doubt have been much slower in Burk- a year between 1980 and 1993. Year-to-year variations in ina. growth are large and depend mostly on the weather and In 1991 Burkina Faso launched, with the support of related crop and livestock production developments. donors, an adjustment program relying on internal ad- Until 1988 the economy enjoyed relatively good justment policies and structural reforms aimed at build- growth. Much of the growth was, however, derived from ing the foundation for sustained economic and social two unsustainable sources: an expansion of public con- 11 Burkina Faso sumption and investment spending, and high agricul- the wage bill had been increasing too fast, crowding out tural growth due in part to bringing of new land, re- investment and operating expenditures. The amounts cently freed of onchocerciasis - river blindness - allocated for maintenance of basic infrastructure were under cultivation. In contrast to a rapid growth of minimal. Expenditures for basic health services and construction and an expansion of transport and other primary education were inadequate, while health service services, driven largely by the good performance of coverage and primary school enrollment rates remain agriculture, manufacturing stagnated during the 1980s well below the average for similarly poor countries. even though highly protected by import controls. The Recurrent expenditures of economic or social impor- reasons were several. Structural factors such as poor tance were being financed by external grants or simply technical skills, high energy and transport costs, high being eliminated. Measures to reverse trends in these wages and worker benefits, and rigid price and trade areas were an integral part of the program launched in controls hurt competitiveness. The policy framework 1991, and they were fully implemented. Defense out- was complex and sometimes contradictory. and special lays, which were higher than operating expenditures for tax exemptions and protective measures deterred effi- education and health combined in the mid-1980s, were ciency gains. cut and the savings shifted to higher allocations for In 1989 and 1990 real GDP growth slowed to 1.7 materials and supplies in the priority ministries and for percent on average. largely reflecting a fall in agricul- the recruitment of 950 primary school instructors. tural output due to a recurrence of poor rainfall and a Burkina's external accounts developed relatively fa- curtailment of public investment. Because 1991 was a vorably during the 1980s, thanks to rising cotton and good agricultural year and the private sector started to gold export revenues. The current account deficit (ex- respond to reforms in the incentive framework, the cluding official transfers) improved compared with per- expansion of GDP, in real terms, reached 6.0 percent, formance over 1977-82. Net capital inflows sufficed not despite a furthe. reduction in the growth of public spend- only to cover the current account deficits over 1982-88, ing. By contras,. economic developments in 1992 and but also to build up gross official reserves to the equiva- 1993 were on the whole disappointing. as low world lent of about 5.4 months of imports of goods and serv- prices combined with uneven rainfall slowed the growth ices at end- 1988. In 1989, however, Burkina's of domestic output and incomes, worsened the public balance-of-payments position weakened dramatically finance situation, and weakened the external position. because of a deterioration in the trade balance, a larger According to preliminary estimates, 1994 GDP growth deficit in the service account, and lower net private was only about I percent, as excessive rainfall caused a transfers. While the external trade balance improved in decline in agricultural output. 1990 and 1991, it deteriorated in 1992 and 1993, owing The government's cumulative overall budget deficits to a large extent to a reduction in the volume and averaged almost 9.2 percent of GDP over 1986-90 (ex- international price for cotton exports. Initial indications eluding grants). Because of administrative inefficien- are that this trend was reversed in 1994. cies and the stagnation of the formal sector, tax revenue Burkina's external position is still relatively comfort- performance was disappointing and Burkina fell into able, although it weakened somewhat in recent years as arrears on its domestic and external debt service obliga- the impact of the slow improvement in competitiveness tions as necessary measures on the expenditure side was offset by adverse external shocks, notably the de- were not taken. At the end of 1990 external and domestic cline in world market cotton prices, a slow recovery of arrears were approximately equivalent to one year's gold exports, delay in developing a promising zinc fiscal revenue. With the adoption of the comprehensive deposit, and a sharp drop in worker remittances from adjustment program in 1991, including measures to C6te d'lvoire. In 1991 BurkinaFaso adopted a macro- contain the wage bill and improve revenue performance, economic policy framework and a structural adjustment the government was initially able to clear the pro- program supported by IDA and the IMF. The corrective grammed amount of its arrears. The accumulation of measures implemented under the program, which fo- external and domestic payments arrears resumed in cused on internal adjustment policies, contributed to a 1992 and accelerated in 1993, as a result of'slippages in narrowing of the overall fiscal deficit and to the contain- fiscal revenue. Inflation has traditionally been mnoder- ment of the current account deficit. ate. averaging 3.2 percent per year over 1980-93. Ajump While the government successfully contained growth in consumer prices was to be expected following the of the wage bill, by mid-1993 a significant deterioration CFA franc devaluation, but restrictive policies appear to in public finance performance was becoming increas- have limited inflation to about 25 percent in 1994. ingly apparent. Tax revenues were far short of targets, The structure of current public expenditures has also principally because of weaknesses in customs admini- been a subject of concern. Because of the rehiring of stration, which was confronted also with growing fraud. civil servants laid off under the previous administration. The cotton sector deficit, resulting from a decline in 12 Burkina Faso world market prices, put a large claim on the govern- reducing import restrictions, and allowing increased ment's budget. The government also failed to take sev- internal competition. eral revenue-enhancing measures expected in early 1993, including variable import levies on rice and sugar, Population and Environment and a temporary tariff surcharge to substitute for re- moved quantitative import restrictions until October Burkina's high population growth of almost 3 percent a 1993. year contributes to a variety of ecological and social In January 1994 Burkina Faso joined the other coun- development problems. Cultivabie land, plant cover. tries of the CFA zone in devaluing the CFA franc 50 and water resources are overexploited in populous areas, percentagainsttheFrenchfranc,andadoptedanupdated leading to rapid soil degradation, erosion, and further medium-term structural adjustment program and an eco- desertification. Emigration to neighboring coastal coun- nomic and social program aimed mitigating the adverse tries has become increasingly less attractive in recent social impact of the devaluation while containing aggre- years because of persistent economic and financial prob- gate demand, deepening ongoing structural and sectoral lems in the traditional host countries. Available public reforms to improve competitiveness conducive to pri- finances cannot keep up with the costs of basic education vate-sector growth, and strengthening the delivery of and the provision of health care and other basic services social services. Developments since the devaluation are for the rapidly increasing population. broadly satisfactory. Inflation appears to have remained The government is committed to increased family below the initial target of 30 percent for 1994, and the planning services and will allocate more resources for government has lifted the price controls that had been these programs and better integrate them into the exist- reimposed after the devaluation. There is also strong ing health service delivery system. The government has evidence of a rebound in exports, notably exports of initiated a public information program to address the livestock and agricultural products, as well as a pickup spread of sexually transmitted diseases, such as HIV. in activity in import substitution sectors, such as textile, Increased awareness of environmental degradation has soap, and bicycles. led to the formulation of a program to extend simple The planning of public sector investments has been technologies that aid soil, water, and biomass conserva- a continual problem in Burkina but has improved since tion. A portion of the resources needed for primary 1990. Its public investment program for 1993-95 is free education will be made available by continuing reduc- of highly visible large-scale projects that have not been tions of still-high expenditures on secondary and univer- seriously analyzed as to their economic merits, budget- sity-level stipends and reductions in nondevelopment ary implications, or the country's capacity to implement expenditure. them. While the government has in the past given priority to transport sector investments of limited eco- nomic value -to the detriment of maintenance and rehabilitation of existing infrastructure- it is now Burkina's social indicators and population growth mir- seeking a balance between new investment and main- ror the widespread poverty. The crude death rate (18 per tenance expenditures. Rehabilitating economic and so- 1,000), infant mortality rate (132 per 1,000), and com- cial infrastructure is another priority, and new bined child-infant mortality rate (195 per 1,000) are initiatives will focus on high-return investments, land among the highest in the world. Primary school enroll- management, and the development of Burkina's human ment has only recently reached 31 percent. Adult liter- resources. acy was estimated at about 18 percent in 1991, while life The Burkinabe people have long been known for expectancy at birth is estimated at 48 years. Agriculture their entrepreneurial skill and diligence, and Burkinabe remains little diversified and subject to climatic vaga- migrants have made a substantial contribution to the ries. High rural-to-urban migration, combined with still- economies of neighboring coastal countries. To stimu- inadequate social services, and government policies. late formal private sector production, trade, and invest- which in the past constrained opportunities for private ment, Burkina is reducing government intervention and sector activity, have also contributed to poverty in urban regulations. Price controls have been lifted, labor regu- areas. A poverty assessment is being prepared by the lations made more flexible, the fiscal system rational- government, and the results will form the basis of a ized, and the investment code updated. Policies that strategy and program to alleviate poverty more effec- contain wage and price inflation and enhance competi- tively. At the same time, vulnerable groups are expected tiveness are being pursued in light of the relatively high to benefit from the adjustment process, which is proinot- costs of domestic production. Since 1990, the govern- ing private-sector growth and more effective, broad- ment has taken steps to loosen its tight regulatory frame- based social services through more efficient public work by eliminating export taxes, liberalizing prices, spending. 13 Burkina Faso Population mid-1993 (millions) 9.8 Income group: Low GNP per capita 1993 (US$) 300 Indebtedness level: Less Indebted KEY RATIOS 1985 1990 1992 1993 1994 Invetment to GDP ratlo (%) Gross domestic investment/GDP 24.2 19.1 21.4 22.1 .. 30 Exportsofgoodsandnfs/GDP 13.1 13.5 11.9 11.9 Gross domestic savings/GDP -2.0 3.3 2.9 2.2 20 Gross national savings/GOP 9.1 7.0 6.9 6.1 Current account balance/GDP -15.1 -12.2 .14.6 -16.0 1 Interest payments/GOP 0.8 0.4 0.5 0.6 Total debtIGDP 41.2 32.3 35.6 40.7 . Total debt/exports 171.3 156.7 202.0 234.8 as so 90 91 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (%) (1% of GDP)Jo. Agriculture 44.4 43.5 Industry 17.4 19.6 Manufacturing 12.0 13.2 Services 38.1 36.8 1985-90 1990-94 1992 1993 1994 so (average annual gruwth) Agrculture 2.1 2.5 -3.7 0.0 Industry 4.4 3.0 6.7 1.3 Manufacturing 4.4 4.0 6.8 1.0 Services 4.4 1.6 2.4 1.5 0 _ _ 0 _ 9 9 .9 aa as s 91 92 93 94 GDP 3.3 2.2 0.6 0.4 .Agriculture mindustry oServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth ratme of GDI and GDP (%) Prvate consumption 86.6 79.0 80.2 80.7 40 General government consumption 15.5 17.7 16.9 17.1 .. 3r Gross domestic investment 24.2 19.1 21.4 22.1 .. 30 Exportsofgoodsandnfs 13.1 13.5 11.9 11.9 .. 2 Imports of goods and nfs 39.3 29.3 30.4 31.8 .. 20 1985-90 1990-94 1992 1993 1994 | 5 (average annual growth) io \ Prvate consumption 3.9 1.5 3.4 -1.8 .. General govemrnment consumption 3.2 5.1 7.8 1.6 .. 0 Gross domestic investment -1.4 4.9 -12.5 3.5 .. s s 8 91 92 93 94 Exports of goods and nfs 5.9 0.2 0.3 3.8 .. V Imports of goods and nfs 2.8 2.6 1.4 -1.2 Gross national product 3.2 1.5 0.5 0.3 0.5 -1S Gross national income 3.6 1.5 0.3 -0.8 .. GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 [Change of GDP deflatorand CPI() Domestic prices (% change)4 Consumer prices 6.9 -0.8 -2.0 0.6 .. 3 Wholesale prices 2 / Implicit GDP deflator 4.8 1.5 -0.4 2.0 I. Government finance 1 91 93 94 (% of GDP) . Current budget balance 1.5 -1.8 -0.2 -2.2 Overall surplus/deficit -6.0 -7.5 -7.1 -9.2 -GDP del. -CPI Note 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 14 Burkina Faso POVERTY and SOCIAL (annual gro*th rates) 1985-90 1990-94 Development dliamnd Population 2.6 2.8 Liexpectancy Labor force 2.0 2.1 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 47.2 per primary Infant mortality (per 1,000 live births) 128.6 capita enrollmert Child malnutrition (% of children under 5) Access to safe water (% of population) 67.3 Energy consumption per capita (kg oil equivalent) 16.3 Illiteracy (% of population age 15+) 81.8 Access to safe water Gross primary enrollment (% of school-age population) 31.0 TRADE (millions S$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 136 281 288 273 700 Cotton 30 97 94 64 .. 00 Meat 14 35 33 32 Manufactures . . . 0 Total imports (cif) 353 543 642 636 400 Food 59 90 87 86 .. __ I I i Fuel and energy 32 83 42 37 Capital goods 106 105 241 240 . Export price index (1987=100) 81 116 119 107 0 Import price index (1987=100) 90 107 115 116 .. 0 Terms of trade (1987=100) 90 109 103 93 BB 89 90 91 92 93 94 Openness of economy (trads/GDP, %) 52 43 42 44 Exports e Imports BALANCE of PAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GOP ratio (%) Exports of goods and nfs 163 349 349 336 0 - _ - _ +-.+ Importsof goods and nfs 488 757 894 896 2 . e 89 90 91 92 93 94 Resource balance -325 -408 -546 -560 .4 Net factor income -1 -12 -28 -30 Net current transfers 139 105 145 140 4. Current account balance - Before official transfers -187 -314 -429 -450 -10 After official transfers -60 -89 -97 -117 Long-term capital inflow 46 89 132 129 1 Total other items (net) 8 6 20 24 1. Changes in net reserves 6 -6 -55 -36 Memo: Reserves excluding gold (mill. USS) 140 300 341 382 Reserves including gold (mill. US$) 143 305 345 387 Conversion rate alocal/S) 449.3 272.3 264.7 263.2 3483 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of extemal debt(% Long-term debtlexports 152.9 140.9 190.2 224.3 100 _.ssumii14. IMF credit/exports 3.4 0.0 1.7 4.3 Short-term debt/exports 15.0 15.8 10.1 6.3 Total debt service/exports 9.9 6.4 6.3 7.1 75 - PNG GDP ratios X Prst Long-term debtUGDP 36.7 29.1 33.6 38.8 so *Off. IMF credit/GDP 0.8 0.0 0.3 0.7 Short-term debt/GDP 3.6 3.3 1.8 1.1 25- Long-term debt ratios Private nonguaranteedAlong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 -, Private creditorsAlong-term 7.8 5.1 0.5 0.4 0.2 a 99 90 91 92 93 94 Official creditors/long-term 92.2 94.9 99.5 99.6 99.8 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 15 Burundi B urundi is a landlocked country of 27,834 square winning the presidency and a majority in the National kilometers in Central Africa. Bujumbura, the Assembly. An attempted army coup that October re- capital, is 2,100 kilometers t'rom the nearest sulted in the assassination of the president, the president port, Kenya's Mombasa. GDP per capita was of the National Assembly, and other top officials. Al- one of the lowest in the world at $180 in 1993. With a though the coup faltered in the face of international population of 5.8 million growing at 3.1 percent a year, opprobrium, it destabilized Burundi's political situation there are 208 inhabitants per square kilometer, ten times and rekindled ethnic strife. An attempt to restore politi- the Sub-Saharan African average. Urbanization is only cal legitimacy with the election by the National Assem- 6 percent compared with a 30 percent average for the bly of a new president in February 1994 ended soon after region. Burundi has limited natural resources other than with his death in April 1994 in an airplane crash that also relatively fertile agricultural land and a climate that took the life of his Rwandan counterpart. allows three growing seasons a year. Mineral resources New power-sharing arrangements in September 1994 include cassiterite, nickel, phosphate, vanadium, and curtailed the powers of the president and the National some alluvial gold. An exploration agreement for nickel Assembly, and granted the opposition and the prime sulfites was concluded in 1993. minister representing it additional powers and 45 per- Agriculture contributes about half of GDP, 90 percent cent of all important public appointments. The agree- of employment, and over 80 percent of export earnings. ment paved the way for the inauguration of a new The most important export crop in this largely subsis- president last October and the appointment of a new tence sector is coffee, which accounted 70 percent of government. Infighting within the opposition party led merchandise exports over 1990-94. Burundi was tradi- to a change of government in February 1995. Political tionally self-sufficient in food, but food production has instability has weakened the country's institutions, in- not kept pace with population growth and declining soil cluding public administration and project management. fertility. The average smallholder farm size has declined to 0.7 hectares. In 1994, l'ollowing the displacement of The Experience with Adjustment 800,000 people, mostly farmers, in the aftermath of the political crisis and ethnic violence that erupted in Octo- Burundi has pursued an adjustment program supported ber 1993, Burundi had a food deficit of about 250,000 by IDA and the IMF since 1986, and has made signifi- metric tons and needed substantial food aid. cant progress in exchange, price, and trade liberaliza- The secondary sector accounted for only 18 percent tion. and fiscal management. The government of GDP and 10 percent of exports in 1994. Despite implemented important regulatory reforms, including a growth averaging 5 percent since 1985, the modern new labor code, banking law, and central bank statutes, sector has been unable to absorb excess rural labor. The and is preparing a new tax code and commercial law; it private sector contributed only 16 percent of gross fixed promoted exports through a free trade zone created in investment over the last 15 years, mainly in sinallholder 1992, a duty drawback scheme, transport subsidies for farming and transport. The public sector dominates exporters, and the legalization of foreign exchange ac- manufacturing, energy, infrastructure, the t'inancial sec- counts for exporters. Burundi has taken steps to reverse tor, and other modern-sector activities, and contributes the appreciation of the real effective exchange rate, over half of formal employment of 40,000. Some 80 which depreciated by 44 percent between 1986 and percent of investment is externally financed. 1992; during the same period fiscal revenue increased slightly in proportion to GDP, and Burundi consistently Recent Political Developments recorded a primary fiscal surplus, no mean feat in Sub- Saharan Africa. Burundi held its first democratic elections in June-July Despite this progress on the policy front, supply 1993, with the party representing the Hutu majority response has lagged. Growth, although positive and 16 Burundi above the regional average, slowed; private investment Burundi's human resources are being rapidly eroded barely increased; and exports neither increased nor di- by the ethnic and political crisis, and the resulting eco- versified. The structure of Burundi's economy has re- nomic morass. Social indicators, historically compara- mained largely unchanged, with a dominant subsistence ble with regional averages, have deteriorated since sector, little diversification, low savings, low private 1993. Preliminary estimates indicateadeclineinimmu- investment, an overdimensioned public sector, and high nization rates from 81 to 60 percent, and in primary aid dependency. During the 1986-92 period, GDP per school enrollment from 70 to 52 percent. The incidence capitagrewanaverageofonly 0.9percentcomparedwith of acute childhood malnutrition doubled, from 6 to 12 2 percent over 1980-85, private investment as a ratio to percent. Official statistics indicate that 15 to 20 percent GDP remained under 4 percent, and export volume grew of the urban population and I to 2 percent of the rural by less than 2 percent, compared with a 9 percent average population tests HIV positive; the spread of AIDS is over 1980-85. Over the adjustment period, the public likely to accelerate with the concentration of large num- deficit and the current account balance did not signifi- bers of refugees in camps. cantly improve, and were equivalent to 6 percent and 9 Donors, through large-scale humanitarian assistance, percent of GDP, respectively (including grants). which totaled $85 million in 1994, have attempted to The poor supply response is mainly due to the often arrest this deterioration. The decline in social standards late and partial implementation of the reform agenda will require. however, several years to reverse, even if and, since 1993, disruptions associated with political social peace is restored. transition and ethnic strife. Many of the reforms - such as the liberalization of the current account and the partial Recent Economic Developments liberalization of the capital account - were imple- mented late in the program. Others - such as freeing Burundi's already disappointing economic performance up agricultural producer prices, or prices and tariffs in weakened markedly over 1993-94 because of the unsta- sectors dominated by public enterprises -were legis- ble political situation and ethnic strife. Virtually all lated but not implemented. activities declined except for coffee and government Reform faltered because the government was unable services - the former because of favorable weather and to reduce the state role in the economy, redirect public higher export prices, the latter because of cover in- resources to support development, and improve the ef- creased military and security outlays. Food production ficiency, transparency and accountability of public-sec- declined by 22 percent; mining, energy, and manufac- tor management. Excessive nondevelopmental turing by 25 percent; and trade by 18 percent. Govern- expenditure for the military, general administration, and ment consumption increased sharply as a proportion of subsidies to inefficient parastatals crowded out spend- GDP, averaging 12.7 percent over the two years, com- ing for human resource development and maintenance pared with less than 10.5 percent in previous years. The and operation of essential infrastructure. The state did investment-GDP ratio declined to 9.5 percent in 1994, not divest, and the government failed to strengthen per capita consumption fell markedly, and savings re- management of public services or improve the effi- mained a negative 4 percent of GDP. Burundi resorted ciency of public investment. to food aid in 1994 equal to about 10 percent of its 1992 production to meet the needs of 218,000 Rwandan refu- Poverty and Social Indicators gees and 460,000 internally displaced people. Burundi's financial situation also deteriorated sig- Poverty is widespread in Burundi and has been rising nificantly over 1993-94, although it generally met its with economic disruption of rural society and agricul- external obligations - external arrears of $3.3 million tural production due to ethnic strife. About 14 percent were reportedly settled in January 1995 - and took of the population is displaced, dispersed, or in refugee strong measures to limit fiscal slippage. The overall camps. A June 1994 household consumption survey fiscal deficit, before grants, increased from 1 percent of showed the proportion of population below the poverty GDP in 1992 to 3.8 percent in 1993 and 6.3 percent in threshold (including the 800,000 displaced people) has 1994. Most of this increase was due to additional mili- increased since 1990 from 36 to 57 percent in rural areas. tary and security outlays, and included recourse to "ex- and from 42 to 59 percent in urban areas. The most trabudgetary" expenditures to escape normal budgetary vulnerable households are likely to be led by single circuits. The fiscal deficit was financed by accumulating women or illiterate persons, have average family sizes payment arrears, mostly to parstatals, and, for the first of over six, and no off-farm income. The poor have high time in many years, recourse to monetary financing. rates of childhood malnutrition, low rates of primary Food shortages due to farmer displacement and security school enrollment, substandard housing, and unsafe problems and a 34 percent increase in the money supply drinking water, and rely on scarce wood for energy. stemming from higher credit to the public sector and an 17 Burundi inability to sterilize increased coffee revenues pushed debt was owed multilaterals. Debt service obligations inflation toalmost 15percent.aten-yearrecord.Thereal averaged 33 percent of exports of goods and services exchange rate appreciated 7 percent in 1994, and the gap over 1993-94. between the official and market rates widened to over 30 percent. Medium-Term Prospects The external position showed an apparent improve- ment in the resource and current account balances over Burundi's long-term prospects for reducing poverty de- 1993-94. The trade deficit narrowed to less than 6 per- pend on its ability to accelerate growth. A strategy predi- cent of GDP - from 9 to 10 percent in previous years cated on private-sector export-led initiatives, -because of an 85 percent improvement in the terms labor-intensive investment, and regional integration of trade and a reduction in nonfood imports due to the could bring growth from productivity improvements in economic slowdown and lower investment. This helped traditional export crops (coffee, cotton, tea, tobacco), reduce the current account deficit, before grants, from introduction of new export crops (flowers, fruits, vege- 20 to under 14 percent of GDP. Despite capital inflows tables, medicinal and ornamental plants), artisanal min- that fell sharply from $100 million in 1992 to an aver- ing (cassiterite, gold, colombite-tantalite), light age of about $40 million over 1993-94 due to poor manufacturing, industrial mining (if the nickel explora- public investment execution, Burundi increased its net tion proves conclusive), and services for the subregion. official reserves from four to six months of import Medium-term prospects will depend on the govern- coverage. ment's commitment and ability to restore political and External debt increased to 118 percent of GDP in social peace and resume reform, and on political pro- 1994, up from 104 percent in 1992; 85 percent of the gress in neighboring Rwanda. 18 Burundi Population mid-1993 (millions) 6.0 Income group: Low GNP per capita 1993 (US$) 180 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 19 1993 1994 InvegtmenttoGDPratlo(%) Gross domestic investment/GDP 13.9 17.3 19.6 17.9 11.2 20 Exports of goods and nfs/GDP 10.8 7.9 8.9 9.4 15.3 Gross domestic savings/GDP 4.7 -2.6 -0.5 -2.8 -8.8 Gross national savings/GDP 3.9 -3.0 -0.6 -2.2 -8.6 1 Current account balance/GDP -10.5 -20.3 -20.2 -20.0 -19.9 Interest payments/GDP 0.8 1.1 1.3 1.3 1.4 Total debt/GDP 39.6 80.2 94.1 112.1 124.1 o Total debt/exports 354.5 932.6 924.4 1.059.4 737.7 as 8n 90 91 92 GDP: PRODUCTION (% of GDP) 11985 1990 1992 1993 1994 SharesofGDPbysector(%) Agriculture 61.5 55.9 54.2 51.9 50.8 100 Industry 13.0 19.0 20.1 21.1 20.1 Manufacturing 8.1 8.8 9.4 Services 25.5 25.2 25.6 27.0 29.1 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 2.4 -4.6 3.0 -7.0 -17.5 Industry 3.2 -3.7 2.6 -4.9 -21.3 Manufacturng -4.5 -7.5 7.8 -16.2 -25.0 Services 4.2 0.0 1.6 -2.1 -1.7 0 9 as so 90 91 92 93 94 GDP 3.8 -2.4 2.7 -5.6 -11.6 EAgricuiture Mtindusiry OServices GDP: EXPENDITURE (% of GDP) 1985 1990 19m 1993 1994 GrowthtratsofGDIandGDP(%) Pnvate consumption 87.4 89.7 87.5 89.8 94.1 iS General govemrnment consumption 7.8 12.9 13.0 13.0 14.7 10 Gross domestic investment 13.9 17.3 19.6 17.9 11.2 s Exports of goods and nfs 10.8 7.9 8.9 9.4 15.3 Imports of goods and nfs 20.0 27.8 29.0 30.1 35.3 a/9 90 91 92 1985-90 1990-94 1992 1993 1994 -o / (average annual growth) Is Pnvate consumption 3.6 1.6 1.1 2.6 -2.4 General govemment consumption 0.5 -0.6 13.1 -5.2 -12.8 -20 Gross domestic investment 4.8 0.3 11.6 4.8 -21.7 -25 Exports of goods and nfs 0.6 -3.9 1.1 -14.8 -11.9 230 Imports of goods and nfs 0.6 12.9 5.5 29.5 9.6 Gross national product 3.9 -2.3 2.8 -5.5 -11.7 Gross national income 2.6 0.1 2.1 -1.8 -5.3 -GDI *GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 [Chang of G ddefltor and CPI (% ) Domestic prices 16 (% change) 14 Consumer prices 3.8 7.0 4.5 9.7 12 WVholesale prices .. .. .. .. .- Implicit GOP deflator 5.2 5.9 4.1 7.7 9.5 4 Govemment finance 2 (% of GDP) 0 , . Current budget balance 6.1 8.1 10.8 9.1 3.9 89 90 91 92 93 94 Overall surplus/deficit -6.6 -5.6 -5.6 -4.5 -3.4 -GDP dot. -e-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 19 Burundi POVERTY and SOCIAL 1985-90 1990-94 Development diamond' (annual growth rates) Population 2.9 3.0 Life expectancy Labor force 2.3 2.4 most recent estimate Poverty level: headcount index (% of population) . GNP Gross Life expectancy at birth 50.3 per pnmary Infant mortality (per 1,000 live births) 100.8 capita enrollment Child malnutrition (% of children under 5) .. Access to sale water (% of population) 37.8 Energy consumption per capita (kg oil equivalenf) 23.6 | Illiteracy (% of population age 15+) 50.0 Gross primary enrollment (% of school-age population) 69.0 Access to safe waler TRADE 1985 1990 1992 1993 1994 Export and import levels (mill. US$) (millions US$) Total exports (fob) 112 73 79 75 122 300 Coffee 94 52 49 47 91 T Tea 6 8 1 1 1 t 13 250 Manufactures 6 4 1 1 9 5 2500tN Total imports (cif) 189 235 221 205 221 2 Food 17 12 1 1 19 50 150 Fuel and energy 32 30 26 24 20 00rn jj Capital goods 63 80 78 57 42 i~~Ii Export price index (19874=100) 116 72 63 74 132 5 Import price index (1987=100) 87 108 98 91 96 a Terms of trade (1987=100) 133 67 64 82 138 | 88 as s 91 92 93 94 Openness of economy (trade/GDP,%) 31 36 38 39 51 EExportC imports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 (millions US$) Current account balance to GDP ratio (%) Exports of goods and nis 127 89 97 89 139 0 tr I _4T Imports of goods and nfs 239 315 315 285 321 88 9 90 91 92 93 Resource balance -112 -225 -219 -196 -182 -s i-i Net factor income -18 -15 -14 -11 -11 Net current fransiers 10 10 13 17 12 aI Current account balance L : Before official transfers -121 -230 -220 -190 -181 15T T- After official transfers -42 -67 -55 -26 -6 Long-term capital inflow 55 62 91 65 25 2t -- Total other items (netl) -1 -1 -11 -28 -13 Changes in net reserves -13 6 -25 -10 -6 25 Memio:I Reserves excluding gold (mill. US$) 29 105 174 163 205 Reserves including gold (mill. US$) 35 112 180 170 211 Conversion rate (local/US$) 120.7 171.3 208.3 242.8 245.0 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Struclure of external debt (%) Long-term debt/exports 318.6 875.0 856.2 996.2 680.2 100 IMF creditLexports 11.3 43.8 56.4 58.0 54.9 Short-term debt/exports 24.6 13.8 11.8 5.2 2.7 Total debt service/exports 20.5 43.6 35.9 36.0 29.4 75 OPNG GDP ratios a Prvt| Long-termdebt/GDP 35.6 75.2 87.1 105.4 114.5 50 *Off. IMF credit/GDP 1.3 3.8 5.7 6.1 9.2 Short-term debt/GDP 2.7 1.2 1.2 0.5 0.5 Longq-term debt ratios Pnvate nonguaranteedAong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed Private creditors/long-term 6.6 1.1 0.4 0.3 0.1 I H 9 90 91 92 93 94 Official creditors/long-term 93.4 98.9 99.6 99.7 99.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average, If data are missing, the diamond will be incomplete. 20 Cameroon C ameroon is richly endowed with natural re- designed to correct major problems across sectors. It sources, a diversified production base, and included streamlining public finances, restructuring the well-developed infrastructure. This impressive public enterprise and banking sectors, and progressive development potential combined with appro- export crop liberalization. Internal commerce was to be priate policies and a favorable external environment deregulated; petroleum sector incentives improved; for- produced real growth averaging 7 percent a year from estry, health and, education policies reoriented; and spe- independence in 1960 through 1985. Agriculture was cial programs established to mitigate the cost of the main source of growth and foreign exchange earn- adjustment. The internal adjustment strategy failed. ings until 1978, when oil production started and quickly however, and little progress was made in structural became the cornerstone of economic growth. As in reforms. The collapse in the terms of trade and the severe many oil-producing countries, however, the oil bo- appreciation in the real exchange rate had adverse effects nanza was not wisely invested. It led to higher on incentives and income distribution and were not expenditures on the civil service, subsidies to ineffi- matched by corresponding policy adjustments: economic cient public enterprises, and low-return policy and management deteriorated after 1989, reflect- capital-intensive investments. ing the lack of commitment of political leaders to eco- Three major shocks after 1986 exposed Cameroon's nomic reform and the corrosive effects of political weaknesses in economic structure and policies. First, the instability fueled by the sharp decline in incomes. external terms of trade declined by 60 percent through 1993 as the prices of coffee, cocoa, and oil fell sharply. Recent Political Developments Second, oil output began a long-term decline with the result that oil exports, at $531 million in 1994, were The economic crisis contributed to destabilizing an al- about one-third those in 1985. Third, the real exchange ready fragile social situation. Cameroon's population is rate appreciated by about 54 percent over 1986-93, one of the most diverse in Africa, with some 200 ethnic greatly reducing Cameroon's competitiveness. By 1993 groups with distinct languages, customs, and social the economy and its external accounts had deteriorated structures. Cameroon is one of the few regional coun- significantly. Continuous public finance deficits were tries that suffered a protracted armed struggle at inde- generated as falling revenues were not matched by ex- pendencein 1960. It is also theonly African country that penditure cuts. The burden on the public finances was started its independence with two parts, the larger one exacerbated by a large and inefficient public enterprise under French colonial rule and the smaller under British sector. Growing public-sector deficits were internalized rule. During the first two decades following inde- in the financial sector to the detriment of banks and the pendence, ethnic and regional differences were con- private sector. These deficits were largely financed by tained by a strong one-party presidential regime. The an accumulation of domestic arrears and foreign bor- outbreak of the economic crisis after 1986 was accom- rowings. Long-term external debt increased to more panied by calls for political liberalization leading to civil than 40 percent of GDP by 1989, while domestic debt disobedience. The Anglophone west and Moslem north accounted for 6 percent of GDP in fiscal 1987. Eco- did not entirely accept the results of the allegedly nomic decline was accompanied by increased poverty as fraudulent elections in 1992. poor farmers suffered the brunt of the fall in producer Government is increasingly sensitive to the accusa- prices and government cut health and education delivery tions of the opposition and the free press, and pressure systems. The middle class, which used to be one of the from major donors. In response to these pressures, and most developed in Sub-Saharan Africa, shrank. convinced that a major improvement in economic man- In 1988 the government launched an economic re- agement would be an essential element in meeting inter- form program supported by the IMF and the World Bank nal and external criticism, the president in July 1994 21 Camerooni appointed a strong new economic team under a powerful although years of economic crises and a worsening minister ot t'inance, fiscal situation have taken their toll on the social sectors. A 1983 survey showed that poor household per capita Recent Econoniic Developments food consumption was four times less than that of other households. Since the mid- 1980s structural poverty and In January 1994 Cameroon and the other countries in the land impoverishment have become critical problems. In CFA zone realigned the parity of the CFA franc from 50 the early 1980s poverty was overwhelmingly a rural to 100 CFAF to the French franc, and the government phenomenon. but in the last few years there has been a began implementing the Central African Customs Union marked increase in urban poverty. In 1983 about 40 trade and tar iff reform. This reform introduced a four- percent of the population was below the poverty line. A r ate commonl external tarit'f- 5. 10. 20, and 30 percent fourth of the urban population is currently estimated to - and an intra-union preferential rate of 20 percent, live below the poverty line, and the situation in rural while a two-rate turnover tax replaced a complicated areas, although less known, is not likely to be much svstemii of turnover taxes. The government adopted a better. new macroeconlomic program supported by the IMF and Unemployment is high among the urban popula- IDA designed to secure Cameroon's newly established tion and is particularly acute among women and international competitiveness. The program aims to youth; a survey carried out in late 1993 estimates bring inflation to a level below 5 percent after initial unemployment in Yaounde, the capital. at about 25 adjustments in relative prices over fiscal 1996, attain percent. In the rural areas, poverty and unemployment sustainable annual real GDP growth of about 5 percent have been on the rise because of the decline in agri- primarily led by improved competitiveness and export culture output. Although health indicators are slightly performance. and quickly achieve primary and, eventu- better than those of the lowest-income regional coun- ally, overall budget surplus to enable increased domestic tries, malnutrition is recurrent among rural women savings. reduce the current account deficit, and finance and children, especially in the arid north. This prob- an increasing share of domestic investments. lem, in addition to widespread adult female illiteracy Estimates for 1994 suggest that economic recovery and poor health care delivery, is reflected in the high is under way. Exports have surged 40 percent. helped by rates of maternal (300 per 100,000 births) and infant a 30 percent depreciation of the real exchange rate. (65 per 1000 live births) mortality. Moreover, AIDS Following a stronig decline, imports started to pick up in has become a significant health risk. While school December 1994. The IMIF program was, however, less attendance levels increased in the 1980s, public re- successt'ul There was a serious shortfall in revenues in sources allocated to education since 1990 have been the first half of 1994, mainly in customs receipts, due to inadequate and school attendance is declining. High low imports, disruptions caused by the introduction of tertility rates and population growth (estimated at 3 the tari'f reform, and fraud. Aiter a reorganization of the percent a year), and continued cuts in public expendi- econonmic ministries and the appointment of a new min- tures will put further pressure on already scarce re- ister of finalnce in July 1994. the budget situation im- sources allocated to health and education and worsen proved, and in the third quarter of 1994, the primary conditions for the poor. surplus rose to CFAF 21 billion against a target of CFAF 12 billion. Similarly the overall budget deficit amounted to CFAF 12 billion versus a target of CFAF 72 billion. P While domestic taxation has shown steady improve- Successful implementation of the government's eco- ment, customs duties were some 43 percent, or CFAF 12 nomic reform program is expected to end the recession billion, under target. Recently, government imposed and return Cameroon to a path of sustainable growth. special export taxes, which adversely affect incentives, Real GDP growth is projected to average about 5 percent and import surtaxes, which are inconsistent with the from fiscal 1996 onward primarily as a result of irn- Central African Customs Union tariff reform. The main proved performance in the tradables sector - such as factor in budgetary pertormance was a large but unsus- coffee, cocoa, agroprocessing industries, and light tainable cut n expenditures for subsidies and transfers, manufacturing - sustained by increased private invest- capital expenditures, and external debt service, leading ment as confidence is reestablished. Gross domestic to an increase in arrears to Paris Club creditors. investment is expected to increase fronm 15.5 percent in 1994 to 23 percent in fiscal 1999. Private investment is Poverty and Social Indicators expected to rise from 12.8 percent of GDP in 1993 to about 16 or 17 percent in fiscal 1997. Investment will Cameroon's social indicators still rank favorably com- have to be financed primarily by domestic savings, pared with thou, of surrounding Sub-Saharan countries. which will need to increase from 14.9 percent of GDP 22 Cameroon in fiscal 1993 to about 24 percent in fiscal 1997. Private External Debt savings will be stimulated by the recovery of economic growth and the improvement in the external trade posi- The expansionary policies of the 1980s led to a dramatic tion. Public savings are projected to turn around from deterioration of Cameroon's credit standing as the gov- a negative level in fiscal 1993 to at least 8 to 9 percent ernment accumulated domestic and foreign debt, and of GDP, mainly as a result of improved revenue per- was increasingly unable to meet its debt service obliga- formance. tions. Public-sector internal debt, including arrears, was The principal objective of fiscal policy is to generate about 45 percent of GDP in fiscal 1994. Most of the primary surpluses and public sector savings sufficient to public-sector debt is attributable to the government and, cover an increasing share of the country's debt service to a lesser extent, a small number of public enterprises, obligations (including servicing domestic debt) and mainly in the transport and the agriculture sectors. raise public investments. It is expected that the primary Cameroon's external debt has also increased sharply fiscal balance will be reversed from a deficit of 1.6 since 1985. Long-term debt amounted to 83.8 percent of percent of GDP in fiscal 1993 to a surplus of almost 5 GDP in 1994, and the long-term debt service-to-export percent in fiscal 1997 by increasing nonoil tax revenues ratio climbed to 17 percent. With the large declines in from 11.6 to about 13 percent of GDP. The main sources exports and government revenues, Cameroon has expe- of improvement are the turnover tax introduced in 1994 rienced a sharp deterioration in its capacity to service (and, eventually, a value-added tax) and the further external debt. Since 1991, actually paid debt service has reduction of the wage bill. amounted to less than 30 percent of debt service due. 23 Cameroon Population mid-1993 (millions) 12.5 Income group: Lower-middle GNP per capita 1993 (US$) 820 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio(%) Gross domestic investment/GDP 24.8 18.5 14.6 14.8 15.5 30 Exports of goods and nfs/GDP 32.7 20.6 20.9 19.4 27.8 I Gross domestic savings/GDP 33.7 14.7 14.9 15.2 20.5 20 Gross national savings/GDP 26.9 10.8 10.6 9.0 12.4 Current account balance/GDP 3.9 -7.6 -3.9 -5.8 -3.3 '0 Interest payments/GDP 1.6 1.4 1.3 1.3 2.0 Total debt.IGDP 35.3 54.2 58.4 59.6 90.6 195 190 192 14 19 Total debt/exports 104.3 259.2 273.0 302.5 323.3 L 8 9 9 3 GDP: PRODUCTION 1985 1990 1992 1993 1994 rhrsGpyetr-§ (% of GDP) Se GP by sector Agriculture 20.2 24.2 26.2 28.6 28.6 |39 Tn r- Industry 33.6 29.4 25.9 24.9 24.9 Manufacturing 10.8 13.6 12.4 11.3 11.39 Services 46.3 46.4 47.9 46.5 46.5 1985-90 1990-94 1992 1993 1994 50 (average annual growth) Agriculture -0.4 -5.4 -2.3 -9.4 -4.3 Industry -5.0 -5.4 -2.2 -9.6 -4.3 Manufacturing 10.4 -5.4 -2.2 -9.5 -4.3 Services -3.4 -5.3 -2.2 -9.4 -4.3 88 89 90 91 92 93 94 GDP -3.2 -5.4 -2.2 -9.5 -4.3 UAgriculture mindustry F]Services GOP: EXPENDITURE (% of GDP) i 985 1990 1992 1993 1994 CGrowth ratte ot GDI and GDP (%) Pnvate consumption 57.5 74.2 73.3 73.2 71.8 51 General govemment consumption 8.8 11.2 11.8 11.7 7.7 o- Gross domestic investment 24.8 18.5 14.6 14.8 15.5 . 90 Exports of goods and nfs 32.7 20.6 20.9 19.4 27.8 Imports of goods and nfs 23.8 24.4 20.6 19.0 22.8 .19 1985-90 1990-94 1992 1993 1994 -20 (average annual growth)1 Private consumption -4.9 -5.2 2.3 -12.2 -1.3 |25 General govemment consumption 6.3 -10.6 -13.0 -4.0 -32.0 |30 Gross domestic investment -13.5 -8.4 -15.4 -0.9 -7.9 -35 Exports of goods and nts 6.6 -1.8 4.5 -8.5 2.5 40 Importsofgoodsandnfs -3.6 -4.4 7.1 -10.4 -4.8 -45 Gross national product -2.2 -5.9 -2.0 -10.3 -4.3 Gross national income -6.0 -5.1 -3.0 -10.8 -1.7 -GDI --GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prics* 20 (% change) 15 Consumer prices 11.5 1.7 1.4 . Wholesale prices .. .. Implidt GDP deflator 14.6 3.0 -2.5 3.6 18.3 5 Govemrnnt finance 9 91 93 s4 (% of GDP) Current budget balance 9.3 -1.9 -3.3 -3.9 -6.1 1° Overall surplus/deficit -1.5 -7.7 -6.8 -6.8 -9.5 1 -GDPdef. -,-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 24 Cameroon POVERTY and SOCIAL (annual gmowth rates) 1 1990-94 Development diamond' Population 2.9 2.8 Life expectancy Labor force 2.0 2.2 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 56.5 per primary Infant mortality (per 1,000 live births) 61.4 capita enrollment Child malnutrition (% of children under 5) 13.6 Access to safe water (% of population) 34.2 Energy consumption per capita (kg oil equivalent) 86.6 I Illiteracy (%4 of population age 15+) 45.9 Gross primary enrollment (% of school-age population) 101.0 Access to safe wafer TRADE (millions US$) 195 1990 1992 1993 1994 Export and import levels (mill. USS) Total exports (fob) 2,339 1,882 1,937 1,772 1,812 2500 T Fuel 1,535 824 868 779 531 Cocoa 226 156 132 115 177 2,000 Manufactures 198 325 241 227 207 r r F F Total imports (cif) 1.103 1,605 1,242 1,225 1,063 1x500 Food 92 134 104 102 89 Fuel and energy 8 16 8 8 7 'a Capital goods 382 289 208 233 190 90 Export price index (1987= 100) 190 84 80 77 131 Import price index (1987=100) 115 112 112 107 1630 Terms of trade (1987=100) 165 75 71 72 81 89 g9 91 92 93 94 Openness of economy (trade/GDP,%) 57 45 42 38 51 - Exports 15 Imports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 -___________ ____ (millions US$) Current account balance to GDP ratio(%) Exports of goods and nfs 2,798 2,275 2,342 2,153 2,125 0 Imports of goods and nfs 1,898 2,690 2,307 2,108 1,745 81 88 89 90 91 92 93 94 Resource balance 900 -416 35 45 380 .2 j Net factor income -539 -488 -652 -744 -659 .3 i Net current transfers -33 64 178 62 29 -4 -_ Current account balance .5 I Before official transfers 328 -840 -439 -638 -249 -6 After official transfers 328 -840 -437 -638 -237 . t7 Long-term capital inflow -158 737 810 547 827 8 Total other items (net) -132 36 -430 -128 -426 -3 ___ Changes in net reserves -38 67 57 219 -164 | - Memo: Reserves excluding gold (mill. US$) 132 26 20 2 Reserves including gold (mill. US$) 142 37 30 14 Conversion rate (localUUS$) 471.1 300.7 280.4 265.4 434.3 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%/6) Long-term debt/exports 84.6 213.8 237.1 260.4 299.0 1j0 - - IMF crediVexports 1.0 5.2 2.6 0.7 2.0 Short-term debt/exports 18.7 40.2 33.3 41.4 :22.3 Total debt service/exports 22.6 19.3 15.4 20.3 18 6 75 . , 1PNG GDP ratios al_ Prvt. Long-term debt/GDP 28.7 44.7 50.7 51.3 83.8 m a Off. IMF creditVGDP 0.3 1.1 0.6 0.1 0.5 Short-term debt/GDP 6.4 8.4 7.1 8.1 6.2 2 Long-term debt ratios Pnvate nonguaranteed/long-term 16.0 4.7 4.5 4.3 3.7 | . Public and publicly guaranteed Private creditors/long-term 18.3 21.2 15.5 14.4 8.4 88 89 90 91 92 93 94 Official creditorsAlong-term 65.7 74.2 80.0 81.3 87.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. It data are missing, the diamond will be incomplete. 25 Cape Verde C ape Verde is a small archipelago of ten islands for about 11.5 and 6.5 percent of GDP, respectively. The 650 kilometers off the coast of Senegal, with a primary sector accounted for about 13 percent of GDP land area of 4,036 square kilometers and an because of the low agricultural potential and inefficient exclusive economic zone of 630,000 square exploitation of reasonably well endowed fishery re- kilometers. Nine islands are populated, and half of the sources. Agriculture employs about 24 percent of the population of less than 400,000 lives on the island of active population. Santiago, mainly in Praia, the capital city. About one- Foreign trade is characterized by modest merchan- tenth of Cape Verde's surface is arable, and prolonged dise export earnings, a high share of services in total cycles of drought aggravate a serious shortage of fresh exports, and high merchandise imports. The merchan- water. Faced with austere living conditions and limited dise export base is insignificant both in value and in employment opportunities, Cape Verdeans have tradi- diversity of exportables. Export earnings come predomi- tionally emigrated. Hence, twice as many Cape nantly from fish and bananas. Nontraditional merchan- Verdeans live abroad as on the islands, and their close dise exports are of marginal importance. Traditionally, ties with the homeland are evidenced by significant Cape Verde's most substantial export earnings come worker remittances, which averaged about 12 percent of from nonfactor services rendered to international mari- GDP between 1989 and 1992. The average annual popu- time transport, and more recently from international air lation growth rate was 2.7 percent a year, or 1 .5 percent traffic services. The economy is highly dependent on adjusted for emigration, during the 1980s. GNP per imports of food (predominantly financed by food aid), capita was estimated at $920 in 1993. capital, and intermediary goods. Economic development is hindered by poor natural resources, the prolonged cycles of drought, and the Social Indicators small domestic market. The scattered nature of the is- lands gives rise to costly communications. After inde- Compared with those of other countries in Sub-Saharan pendence in 1975 the development of a virtually Africa, social indicators in Cape Verde are impressive. nonexistent economy into a modern one was a formida- The available social indicators for 1992 show universal ble challenge for the government, which chose to per- primary school enrollment, an adult illiteracy rate of 52 form the role of entrepreneur in agriculture, industry, percent, a fertility rate of 6.4 per 1,000, infant mortality and services. Reliance on the private sector was not of 40 per 1,000, and life expectancy of 68 years. These neglected. The economy performed well over 1980-88; achievements are a result of concerted efforts by na- real GDP growth averaged 6 percent a year. This growth tional associations of women, youth and farmers, NGOs, stemmed predominantly from a high level of public and donors, and allocation of substantial public re- investment in infrastructure and in the public-sector- sources to social services. Good results notwithstanding, dominated service industry. Until 1988, macroeconomic some problems require further attention, in particular management was prudent; the overall balance of pay- high natural population growth, not yet mitigated by ments was in surplus, and a high level of external re- broadly accepted family planning programs, a shortage serves was maintained (in 1988 it peaked at 9.4 months of trained teachers and health workers, a lack of some worth of imports). Monetary policy was cautious and school supplies, and less than adequate primary school resulted in moderate inflation. curricula. Cape Verde's economy has traditionally been based on services. The service sector accounted for about 60 percent of GDP and employed about 41 percent of the active population in the 1980s. Construction and indus- After a period of slow growth (1 .7 percent on average in trial production, consisting largely of light manufactur- real terms) over 1989-91, real GDP has significantly ing, fish processing, and artisanal production, accounted improved since 1992. Real GDP growth rate was esti- 26 Cape Verde mated at about 4 percent in 1993 and 4.5 percent in 1994. account deficits are financed primarily by emigrant re- Economic growth was derived mainly from higher pub- mittances and foreign aid. The overall external balance, lic investment, while private investment remained mod- which returned to a surplus of 0.7 percent of GDP in est. Inflation, which averaged 9.3 percent during fiscal 1992, registered a deficit of 3.2 percent of GDP in 1993, 1991. dropped to 5.9 percent in fiscal 1993 and was primarily because of higher imports of capital goods and expected to continue declining in 1994 and 1995. Lib- imports of foodstuffs in the wake of the 1994 drought. eralization of domestic prices and trade has been a key With the deterioration of the external position, gross factor in keeping inflation under control. However, re- official reserves fell to 4.7 months of imports in 1993. storing internal and external balances has been delayed. Mobilization of domestic and external savings has been Structural Reforms insufficient to support generally well-sequenced reform policies and sustain an enlarged public investment pro- The government has been pursuing in earnest policies gram without putting pressure on the banking system. aimed at opening its economy and greater reliance on Expansionary public investment policy has led to the private sector. This shift in the strategy followed a slippages in the budget deficit and eroded the external period of declining economic performance and struc- position. Although the trend of deteriorating internal tural deficiencies, mainly the result of central planning and external balances has not yet reached an alarming and import substitution. Homegrown policy reforms are magnitude, the risk of further erosion remains high. The aimed at opening up the economy. The policy reforms overall fiscal deficit widened to 9 percent and 12 percent are sound, adequately sequenced and on track. of GDP in 1992 and 1993, respectively, compared with Prices of consumer goods have been virtually fully about 6 percent in 1991. Without an adequate increase liberalized. A large-scale liberalization of the trade sys- in external financing and government savings to finance tem started in late 1991 and was pursued through 1993. higher development expenditure, the government re- The foreign exchange allocation system has been sorted to borrowing from the banking system. streamlined. Registered importers can get freely foreign In 1991 the authorities introduced measures to im- exchange for some 97 percent of all customs items prove government revenue performance and curtail cur- through the only commercial bank, Banco Comercial do rent expenditure. Efforts were made in 1992 to broaden Atlantico. The Cape Verde escudo has been pegged to a the tax base, simplify the tax system, and streamline tax basket of currencies of its key trade partners and sources administration. As a result, government revenue, which of emigrant remittances. The exchange rate of the es- stood at 14 percent of GDP in 1991, rose to 18.4 percent cudo is determined daily on the basis of quotations for of GDP in 1993. The government is committed to con- the dollar and other hard currencies in the currency tinuing tax reforms and improvenments in tax administra- basket. Some progress has been made in streamlining tion. Measures to control public expenditure export and customs procedures. concentrated initially on a freeze in wage rates. How- Privatization and restructuring of the public enter- ever, changes in civil service assignments and pay scales prise sector have been one of the main thrusts of this in 1993 made necessary a large increase in the wage bill, reform. The main objective of the privatization and whose share in the total recurrent expenditure has in- restructuring program is to promote the private sector as creased to about 50 percent. The impact of this measure the main vehicle for economic development and to im- on the budget, however, is expected to be more than prove the financial performance of the remaining public compensated for by the envisaged downsizing of the enterprises. The thoroughness of the preparatory work, civil service. A general recruitment ban at the nonpro- including a public awareness campaign, characterized fessional levels has been in effect since 1993. Improve- by a highly participatory approach and lack of social ments in procurement of goods and services are likely unrest, should pay off soon. By 1996, some 26 public to contribute to further savings. enterprises will be privatized, 8 will be liquidated, 5 Credit to the government has been the most impor- restructured, and 6 will still need a strategy for restruc- tant factor in monetary growth since 1992. By contrast, turing. credit to public enterprises dropped slightly in 1992 and To modernize and downsize, the government has 1993, reflecting both an improvement in the financial initiated reforms aimed at improving the efficiency of situation of a number of these enterprises and a more the civil service, building local government capacity, strict lending policy for others. Credit to the private strengthening economic management, modernizing the sector grew in line with the rate of inflation, with the legal and judicial systems, and reducing delays in pre- increasing share of housing credits. paring and executing public investment projects through The deterioration of the trade balance in recent years better procurement practices. The government has initi- reflects, to a large extent, an increase in imports of ated civil service reform that includes early retirement investment and consumer goods. The resulting current and voluntary departure and retraining for retrenched 27 Cape Verde civil servants. The civil service comprises 11,000 peo- could induce and facilitate private sector investment in ple, of which 400 were scheduled for early retirement productive activities, especially for exports. Infrastruc- and 1,400 for voluntary departure over the period of the ture requirements include ports, airports, and roads. The program. The government embarked upon financial sec- development of energy, water, and sewerage facilities tor reform in late 1993 by reorganizing the Bank of Cape along with adequate pricing policies in these subsectors Verde as an independent central bank and creating a new are also crucial. bank in charge of commercial and investment banking activities. Medium-Term Prospects Human Resources and Poverty Over 1995-97 economic growth is projected to average 5.5 percent a year in real terms. Growth is expected to Lack of employment opportunities, rapid population come from higher public investment in infrastructure, increase, and a lack of the essential skills have contrib- modernization of telecommunications, and water supply uted to an unemployment over 25 percent. The pressure and sewerage systems in urban areas. Private investment on the labor market continues to increase with about in light manufacturing, tourism fisheries, and housing is 3,000 entrants each year, high levels of unemployment expected to increase, as will commerce and services to and underemployment in rural areas, and immigration international air and maritime transport. In response to restrictions in Western Europe. On the demand side, policy changes, improvements in the economic infra- employment opportunities and new investment are still structure and development of human resources, it is generally low. In addition to policies aimed at promot- expected that the private sector will broaden and diver- ing the investment climate, the government is seeking sify the limited export base. to address the unemployment issue through improve- Cape Verde's external position in the medium term ments in population and human resource development will continue to reflect a significant investment-savings policies. gap given the current negative level of gross domestic Although poverty is not prevalent, pockets of poverty savings. Although it is expected that domestic savings persist. The underlying causes of poverty are difficult will increase, reliance on foreign savings will continue. living conditions in rural and urban areas caused by the Achieving external balance will depend on containing shortage of fresh water and limited employment oppor- import demand through better public expenditure man- tunities. Opening the economy and private sector devel- agement, increasing service export earnings, and main- opment will be the most effective way to reduce poverty taming the high level of private transfers. Mobilizing in the long run. Cape Verde has a good record on poverty development assistance for public investment in infra- alleviation; it has expanded social safety nets, building structure and social services, attracting direct foreign on a tradition of solidarity and good social sector poli- investments in productive activities and services, and cies. Positive economic growth per capita in the 1980s, managing external debt prudently will also be important generally sound social programs; concerted action by factors in maintaining growth. local communities, NGOs. and donors in poverty alle- viation programs; significant food aid; and private trans- External Debt fers have increased consumption levels. Targeting, efficiency concerns, and cost recovery are moving into Development projects in Cape Verde have mostly been the government's focus, and its poverty strategy was financed by development assistance, and the high share endorsed by the donor community at the September of grants in this assistance is expected to continue. The 1994 Round Table Meeting in Praia. stock of external debt, which stood at about $148 million Regional integration and international cooperation outstanding and disbursed, is projected to rise because require development of an adequate transport and tele- of an expected increase in borrowing, though this has communications infrastructure, and reliable air and been and will mostly be on concessional terms. External maritime transport systems The existing infrastructure debt service will rise above 10 percent of export earn- needs rehabilitation and expansion to provide better ings and private transfers because of still limited export access and quality services at lower cost, which, in turn, earnings. 28 Cape Verde Population mid-1993 (thousands) 370 Income group: Lower-middle GNP per capita 1993 (US$) 920 Indebtedness level: Less indebted KEY RATIOS 1985 1990 1992 1993 1994 rnvestmentto-GDP ratio (%) Gross domestic investment/GDP 54.2 32.8 32.2 44.6 Is Exports of goods and nfs/GDP 29.0 22.3 14.6 15.7 40 Gross domestic savings/GDP -5.8 -2.2 -10.3 1.2 Gross national savings/GDP 11.2 17.8 11.9 22.9 30 Current account balance/GDP -43.3 -14.0 -22.1 -20.7 5, Interest payments/GDP 2.4 0.8 0.9 0.5 0.9 10I Total debtlGDP 91.3 54.1 45.6 50.9 51.6 Total debt/exports 185.0 133.9 121.9 297.2 BB 99 90 91 92 93 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Shares of GDP by sector (%) Agnculture 11.6 13.7 13.4 12.9 o 1n Industry 17.3 18.5 15.0 15.3 i Manulfacturing .. .. .. .. . I Services 71.1 67.9 71.5 71.9 (a verage annual growth) 1985-90 1990-94 1992 1993 1994 | Agriculture 8.5 -0.8 -1.2 -2.4I Industry 5.5 -2.4 0.0 0.0 Manufacturing 6 4 5 0 6 0 Services 3.'5 6.4' 5.0, 6.0 .' a8 89 90 91 92 93 94 GDP 4.5 4.1 3.4 4.0 4.5 | Agriculture IM Industry El Services GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Private consumption 96.9 86.3 95.7 80.3 i0 General govemment consumption 9.0 15.9 14.6 18.5 so T Gross domestic investment 54.2 32.8 32.2 44.6 Exports of goods and nfs 29.0 22.3 14.6 15.7 - 40 Imports of goods and nfs 89.0 57.2 57.1 590 - 30 1985-90 1990-94 1992 1993 1994 20/ (average annual growth) Pnvate consumption 5.6 -1.6 -6.2 -1.3 10 General govemment consumption -2.8 7.8 8.3 15.4 . 0 Gross domestic investment -9.5 26.7 57.1 9.1 I 9s 91 92 93 94 Exports of goods and nts 0.5 -8.4 -15.4 18.2 |'- Imports of goods and nfs -5.0 4.3 10.0 6.8 Gross national product 4.0 6.7 14.3 2.5 4.5 122J Gross national income 3.9 7.5 13.8 1.5 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 12 T (% change) 10 Consumer prices 5.4 10.7 3.1 5.8 -- a Wholesale prices . 6 / \ Implicit GDP detlator 4.2 9.2 6.1 5.9 5.0 4 Government finance 2T (% of GDP) Current budget balance -0.5 0.0 1.1 2.1 s9 90 91 92 93 94 Overall surplus/deficit -GDP def. -b-CPI| Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 29 Cape Verde POVERTY and SOCIAL_________________ POVERTYandSOCIAL 1985-90 '199G-94 |Development diamond (annual growth rates) Population 1.9 2.7 Life expectancy Labor force 3.0 2.7 most recent estimate Poverty level: headcount index (% of population) .m GNP Gross Life expectancy at birth 64.9 I per pnmary Infant mortality (per 1,000 live births) 48.2 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 74.1 Energy consumption per capita (kg oil equivalent) 305.4 Illiteracy (% of population age 15+) Access to'safe water Gross primary enrollment (% of school-age population) 116.0 TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. US$) (millions US$) Total exports (fob) 3 - n a. n .a. Manufactures Total imports (cif) 91 Food 18 . Fuel and energy . Cap(tal goods . Export price index (1987=100) ..- Import price index (1987=100) .. .. . Terms of trade (1987=100) 88 89 90 91 92 93 94 Openness of economy (trade/GDPR%) 118 79 72 75 . Exports nimports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 _r __a_t (millions USS) Current account balance to GDP ratio (%) Exports of goods and nfs 36 59 58 48 °- Imports of goods and nfs 95 150 204 179 .88. 890 9 192 93 94 Resource balance -59 -91 -147 -131 5 .5 Net factor income 2 1 1 -4 .. Net current transfers 22 52 72 71 . 10 i Current account balance Before official transfers -46 -38 -73 -64 . 15 - Aflter official transfers -9 -12 -4 -10 Long-term capital inflow 14 4 6 10 -20 Total other items (net) 9 3 12 0 Changes in net reserves -14 5 -13 0 .. -25 Memo: Reserves excluding gold (mill. US$) 55 77 76 Reserves including gold (mill. US$) 55 77 76 Conversion rate (local/US$) 91.6 70.0 68.0 80.4 81.9 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%) Long-term debt/exports 183.1 128.7 115.8 280.6 .. I I00 IMF credit/exports 0.0 0.0 0.0 0.0 Short-term debUexports 1.9 5.2 6.0 16.6 75 Total debt service/exports 9.7 5.4 9.2 10.0 .. OPNG GDP ratios a PM Long-term debt/GDP 90.3 52.0 43.3 48.0 50.4 so m Off. IMF credit/GDP 0.0 0.0 0.0 0.0 0.0 Short-term debt/GDP 0.9 2.1 2.3 2.8 1.2 25 Long-term debt ratios Prvate nonguaranteedllong-term 0.0 0.0 0 0 0.0 0.0 | Public and publicly guaranteed e Prvate creditors/long-term 2.5 1.8 1.5 1.5 1.2 [ 8 92 93 94 Official creditors/tong-term 97.5 98.2 98.5 98.6 98.8 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 30 Central African Republic ith an area of 623,000 square kilometers, a significant drop in its terms of trade, aggravated by the W population of about 3.2 million growing at appreciation of the exchange rate after 1985. These 2.5 percent a year, and a per capita income factors led to an economic contraction. From 1986 to estimated at $400 in 1993, the Central Afri- 1993, real per capita income declined by about 20 per- can Republic has large but unexploited natural cent. After improving between 1987 and 1989, the cur- resources. Only a tenth of its arable land is under culti- rent account deficit (before transfers) worsened to 18.6 vation and forest resources are plentiful. Diamonds percent of GDP in 1991. The deficits were mainly fi- extracted by artisans account for 60 percent of exports. nanced through accumulation of arrears and new exter- Other minerals, including gold, are known to exist. naldebt.ThestockofarrearsexceededCFAF IOObillion However, high transport costs are a constraint to growth (or 30 percent of GDP) at end- 1993, consisting of CFAF in this landlocked country. With the exception of dia- 33 billion in external arrears (before the change in par- monds, which are flown out of the country, its external ity) and CFAF 67 billion in domestic arrears - includ- trade is dependent on long transport routes through ing CFAF 18 billion in salary arrears. neighboring Congo and Cameroon. The main transport While the internal adjustment strategy failed to bring route remains the Ubangi River, which is navigable only about growth, it resulted in some lasting changes. Most six months a year. Deterioration in the social sectors price controls and trade restrictions were removed. Food during the past years is another constraint to growth. crop marketing and pricing was completely liberalized, The Central African Republic's economy declined and the first elements of civil service reform were intro- steeply in the late 1970s and early 1980s, mainly as a duced. The number of government employees was re- result of inappropriate government policies and exoge- duced by II percent to about 22,000 between 1986 and nous shocks. Heavy government interference in agricul- 1991. The public enterprise sector also underwent re- tural marketing and an ill-advised agricultural reform in form as the state's portfolio was reduced from 52 to 32 1970 led to a complete halt of research and rapid dete- enterprises through liquidations and privatizations. All rioration of extension services. Unsound and overly commercial functions of public enterprises in the agri- ambitious public investment programs and rapidly in- cultural sector, including cotton marketing, were either creasing budget deficits, caused by an oversized and privatized or liquidated, and their regulatory functions inefficient civil service, nationalized enterprises, and taken over by government agencies. Interest rates were short-term expensive borrowing reinforced the eco- liberalized. The introduction of a three-year rolling in- nomic decline. These domestic problems were exacer- vestment program, which resulted in the elimination of bated by falling prices for its main export crops, coffee a number of nonviable projects, marked a further impor- and cotton, a drought in 1983, and a growing disenchant- tant element of progress. ment among donors that led to its isolation. Political Developments Adjustment Performance 1986-91 The economic crisis led to rising social and political Since 1986 the Central African Republic has pursued a tensions, and eventually to the demise of the one-party series of stabilization and structural adjustment pro- regime. Starting in 1991, the government was no longer grams supported by the IMF and World Bank and aimed able to meet its payroll obligations as tax collection at restoring the basis for medium-term growth and de- collapsed. Civil service salaries were paid only intermit- velopment. As a member of the CFA franc zone, the tently, and by end-1993 were 12 months in arrears. Central African Republic could not adjust its exchange Prolonged strikes by civil servants virtually paralyzed rate to enhance competitiveness but had to rely on inter- the economy. Expenditure on goods and services was nal adjustment to reduce cost. This strategy was crippled curtailed to such an extent that government agencies no by a deteriorating external environment marked by a longer had the means to carry out their tasks. The situ- 31 Central African Republic atinn became particularly alarming in the health and 1991-to-1993 period, while income and consumption education sectors, with most public schools and hospi- levels sank. tals virtually ceasing operations. After three years of Education services are operating again after being political unrest, elections monitored by international closed down for three years, but they are in disarray and observers took place in September 1993. The new unable to cope with the backlog of children who re- president formed a coalition government with broad ceived no schooling at all for three years. There is a net political support. The new government has affirmed its deficit of about 1,300 primary education teachers, and commitment to economic and social reform. Its priority the problem of overcrowding may worsen before it task is to rebuild the country's social and infrastructure improves, given the time needed to train teachers. More- sectors. over, curricula are poorly adapted to real needs. The situation in the health sector is the same: the prolonged Recent Economic Developments crisis reduced already inadequate services to a bare minimum and large sections of the population have no In January 1994, in concert with the other members of access to health care. Where hospitals and health centers the CFA franc zone, the Central African Republic deval- do exist, they are badly equipped and poorly maintained, ued its currency by 50 percent in foreign exchange and lack medical supplies. Even before the crisis, public terms. The government adopted an adjustment program expenditure on health was highly skewed in favor of supported by an IMF standby in March and imple- urban areas, and this situation has not yet been reversed: mented most trade and tax policy reforms agreed as a Bangui, with a third of the population, absorbs 90 per- member of the Central African States' Customs and cent of the health sector's operating budget and has 70 Economic Union, including a four-tier custom tariff percent of the country's doctors. Health indicators are ranging from 5 to 30 percent. well below Sub-Saharan Africa averages, especially in Preliminary figures suggest that the devaluation, to- the rural areas. gether with regular payment of government salaries. has The government is preparing a national environ- triggered a significant supply response, with GDP mental action plan that is expected to be finalized by growth approaching 7 percent in 1994. although the IMF end- 1995, and for which it will seek assistance from the program went off-track because of a significant shortfall donor community. The Central African Republic has a in government revenue, as in most other franc zone satisfactory forestry code, which was enacted in 1990, countries. Consumption olf petroleum products, a crude and a zoning system that identifies protected areas. indicator of economic activity, was 28 percent higher in the first ten months of 1994 than in the same period in 1993. Exports of lumber and wood products have also Medium-Term Prospects benefited from higher international prices; two lumber The Central African Republic's economy would have to companies that had abandoned their operations are grow by at least 5 percent a year to establish a minimum back in business. Higher international prices for coffee level of welfare and security. Even with this rate of and cotton should provide an incentive for rehabilitat- growth, it would take at least ten years to reach the per ing long-neglected plantations. Inflation in 1994 is capita income levels of the late 1970s in real terms. estimated at 28 percent. lower than the 35 percent Significant improvement in per capita incomes and liv- expected. ing standards over the longer term would require higher rates of growth. Poverty and Social Indicators The 5 percent initial growth target is feasible. Coffee and cotton production is expected to continue to react Poverty is pervasive in the Central African Republic. favorably to the devaluation and higher international which was ranked 160th out of 173 countries in the 1994 prices. Only one-tenth of the country's 20 million hec- UNDP Human Development Report. Women are par- tares ofarable land is under cultivation; the potential for ticularly disadvantaged as they shoulder more of the crop diversification is good. and the potential for live- workload, are less educated. and have less access to paid stock expansion is promising; about half the area of the work. The incidence of mnalaria, diarrhea. parasitism. country is suitable for grazing, but only 15 percent is and malnutrition is hiih. anild AIDS has reached alarmi- used. The mining sector could be an even more signifi- ing proportions. I'hree out ot' tour urban households and cant contributor to the economy: over 60 percent of the 85 percent of rural fanmilies lack access to safe drinking country's export earnings and about 12 percent of fiscal water. Eighteen percent of children suffer fronm malnu- receipts are yielded by artisanal diamond exploitation. trition. Only 35 percen: ot'ilhe population over five vears Much of the country rests on Precambrian rock forma- of age can read and write. Weak and underfunded social tions that in other African countries host valuable min- services deteriorated even t'urther in the turmoil of the eral deposits. including gold. Over the longer term, the I2 Central African Republic manufacturing and service sectors have the potential to contribution to investment is expected. Private-sector expand 7 to 8 percent a year, and they could make an investment represents 2.5 percent of GDP at present. increasing contribution to economic growth if policies Over past years the business environment has not are pursued to foster private enterprise. Wood and agro- been conducive to private investment. A major factor processing industries as well as tourism are possible was the overvaluation of the currency. Potential inves- sources of future growth. tors were also deterred by a complex regulatory frame- A steep increase in domestic savings and investment work and the lack of an independent judiciary. The would be needed to sustain growth of 5 percent. Be- devaluation has relaxed one major constraint, but the tween 1994 and 1997, the shares of domestic savings deficiencies in the regulatory and judicial frameworks and investment in GDP are expected to increase from remain to be addressed: overly protective labor legisla- 5.2 percent to 8.7 percent, and from 14.4 percent to 17 tion, cumbersome licensing procedures for new busi- percent, respectively, and an increasing private-sector nesses, and an ineffective judicial system. 33 Central African Republic Population mid-1993 (millions) 3.2 Income group: Low GNP per capita 1993 (US$) 400 Indebtedness level: Severely Indebted KEY RATIOS 1985i 1990 1992 1993 1994 Investment to GDP ratio(%) Gross domestic investmentVGDP 14.5 10.2 11.8 8.6 12.8 20 Exports of goods and nfs/GDP 25.2 16.3 12.5 15.3 22.4 Gross domestic savings/GDP -0.3 -6.3 3.3 1.5 4.4 Gross national savings/GOP -3.5 -10.7 -0.8 -2.7 Current account balance/GDP -16.6 -18.8 -13.7 -11.3 Interest payments/GDP 1.0 0.7 0.5 0.3 0 4 Total debt/GD P 49.4 54.9 63.0 73.3 95.6 Total debt/exporns 188.4 324.7 457.4 469.0 - 88 89 GDP: PRODUCTION (% of GOP) 1985 1990 1992 1993 1994 Shares of GDP by sector (%) Agriculture 39.9 45.0 47.9 49.9 100 Industry 13.7 17.2 14.3 14.1 | Manufacturng 7.3 . . I Services 46.4 37.7 37.8 36.0 1985-90 1 990-94 1992 1993 1994 50 (average annual growth) I Agriculture 2.2 0.2 0.8 2.9 Industry 5.1 -4.6 -10.3 0.0 Manufacturing . . . . . * Services -1.7 -2.1 1.5 -5.7 I a 98 99 90 91 92 93 94 GDP 0.9 -0.7 -2.1 -2.5 5.0 |Agriculture alndustry Seorvices GDP: EXPENDITURE (% of GDP) i985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Pnvate consumption 86.5 96.4 86.8 88.7 89.0 40 T General govemment consumption 13.8 9.9 9.9 9.8 6.8 6 Gross domestic investment 14.5 10.2 11.8 8.6 12.8 Exports of goods andi nts 25.2 16.3 12.5 15.3 22.4 20 Imports of goods and nts 39.9 32.7 21.0 22.5 30.8 10 t 1985-90 1990-94 1992 1993 1994 0 (average annual growth) 94 Pnvate consumption 2.6 -3.1 0.1 -9.3 2.2 °1\ General govemment consumption -3.2 -6.2 -3.0 -6.2 -14.6 -20 Gross domestic investment -8.4 -7.9 -7.1 -30.5 32.4 Exports of goods and nfs -3.7 4.4 -10.4 26.1 19.8 30 Imports of goods and nfs -3.1 -9.8 -1.5 -22.8 6.1 Gross national product 0 3 -1.4 -2.4 -4.2 5.0 Gross national income 0.1 -2.4 -0.1 -9.6 3.4 -GDI --GDP PRICES snd GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Changeof-GDP deflator and CPI(%) Dometic prices s0 - (% change) 40 - Consumer prices 10.4 0.0 -1.0 -2.9 30 Wholesale prices 6.7 1.6 Implicit GDP deflator 9.2 -4.3 0 0 1 5 48.4 t Government finance 0 (% of GOP) 89 9 1 92 93 94 Current budget balance -1.6 -3.6 -4.6 -2.0 10 Overall surplusldeficit -12.0 -12.1 -11.8 | -GPdeSi. --Cp Note 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 34 Central African Republic POVERTY and SOCIAL 1985-90 1990-94 Devolopmentdbmond (annua/ growth rates) Lf Population 2.4 2.5 Life expectancy Laborforce 1.5 18. most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 49.5 per primary Infant mortality (per 1,000 live births) 100.8 capita enrollment Child malnutntion (% of children under 5) i , Access to safe water (% of population) 11.9 Energy consumption per capita (kg oil equivalent) 29.2 Illiteracy (% of population age 15+) 62.3 Access to safe water Gross prmary enrollment (% of school-age population) 68.0 TRADE (millions US$) 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 131 150 114 136 350 Diamonds 34 72 69 71 300 Coffee 41 10 5 8 Manufactures 250 Total imports (cdi) 222 333 .. .. . Food 22 34 ..0 Terms of trade (1987=100) s o9 2 3 Openness of economy (trade/GDP,%) 65 49 33 38 53 O Exports Eimports BALANCE of PAYMENTS 1 985 1990 1992 1993 1994 (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 178 220 177 190 203 o Imports of goods and nfs 276 410 309 278 279 as 689 90 R 93 Resource balance -98 -191 -132 -88 -76 .- Net factor income -7 -22 -19 -23 -1C L | | U Net current transfers -12 -33 -32 -28 -23 Current account balance - - Before official transfers -117 -245 -183 -139 After official transfers -49 -89 -57 -21 20- Long-term capital inflow 43 90 47 9 20 -25 Total other items (net) -14 -10 14 14 Changes in net reserves 20 9 -3 -2 -6 30 Memno: Reserves excluding gold (mill. US$) 50 119 100 112 Reserves including gold (mill. US$) 53 123 104 116 Conversion rate (locaLIUS$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 Stucture ofextenaldebt(%) Export ratIosII Long-term debf/exports 157.5 291.2 409.5 413.5 10° IMF creditlexports 21.1 16.7 16.6 14.9 Short-term debt/exports 9.8 16.8 31.3 40.6 Total debt service/exports 14.3 13.2 8.5 4.8 .. 75- OPNG GDP ratios G PM. Long-term debt/GDP 41.3 49.2 56.4 64.6 87.4 -50 mOf. IMF credit/GDP 5.5 2.8 2.3 2.3 4.5 Short-term debt/GDP 2.6 2.8 4.3 6.3 3.7 25 Long-term debt ratios Pnvate nonguaranteedAlong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 ° Private creditors/long-term 8.6 3.7 2.9 2.7 2.1 Be 0 91 92 o 93 Official creditors/long-term 91.4 96.3 97.1 97.3 97.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 35 Chad C had, a landlocked country, with a population of Chad also has important mineral resources, in par- 6.8 million composed of many different ethnic ticular, sizable proven oil reserves, which, if exploited, groups. is endowed with valuable natural re- would radically change its economic outlook. sources, which have not been properly exploited A civil war from 1979 to 1983 was followed by a because of its turbulent history. Brief growth periods period of peace and economic rehabilitation, and in 1987 have been interrupted by steep declines caused by po- the government launched an adjustment program sup- litical instability and civil strife. Per capita GNP, ported by the IMF and IDA, but progress was halted by estimated at $210 in 1993, is lower than it was at inde- a new round of civil war that ended in December 1990. pendence. and Chad is today one of the poorest and least The conflict brought structural reforms to a standstill developed countries in the world. and the situation of public finances deteriorated. Gov- The level of primary health and education is lower ernment current receipts fell to the equivalent of 6 per- than in most cther Sahelian countries. Female adult cent of GDP in 1994 from 9 percent in 1990. With a literacy is only 8 percent. compared with an average of reduction in external assistance, a decline in cotton 38 percent for Sub-Saharan Africa. Infant mortality is prices, and a poor crop in 1993, the public finance estimated at 124 per 1.000 live births, compared with a situation became critical and the government accumu- regional average of 106, and life expectancy at birth is lated domestic and external arrears. 47. tive years below the regional average. Low health indicators are due to malnutrition, lack of clean water, Recent Political and Economic Developments and poor sanitation and hygiene. Since less than 2 per- cent ot the population has access to electricity, house- A national conference of 40 political parties and the holds have to rely almost exclusively on wood to satisfy civilian and military authorities reached agreement in their energy needs, and this leads to a deterioration of April 1993 on the outline of a new constitution, a new the environmient around urban centers. electoral process, and the selection of a prime minister Agriculture generates close to 40 percent of GDP to head a 12-month transitional government with a man- anid provides a livelihood for over 80 percent of the date to prepare general elections and implement an am- population. Compared with other Sahelian countries. bitious economic rehabilitation program. However, Chad has good agricultural potential, especially in the economic issues were overshadowed by political ones south, where miost of the population is concentrated. and the financial situation further deteriorated. IFood productionil potential is sufticient to meet domes- In January 1994 Chad joined the other countries of tic denmand: but growth has been hindered by the lack the CFA franc zone in devaluing the CFA franc by 50 of security and illegal taxation by paramilitary units. percent and implemented the West African Customs Food is produced mainly by smallholders for family Union tax and trade reform program, establishing a subsistence. and the level of production fluctuates four-tier tariff ranging from 5 to 30 percent. A new widely with raintall. Food security raises concern adjustment program supported by the IMF and IDA in particularly in the Sahelian area. Livestock, cotton, March 1994 included measures designed to contain the and gunm arabic provide the main source of cash in- inflationary pressures resulting from the devaluation conie tor thc rural population. The industrial sector while protecting vulnerable population groups. Fiscal conitributes about 17 percent of GDP and is dominated performance lagged in the first hialf of 1994. and external by COTONTCHAD, a parastatal that processes and payments arrears built up. but the situation improved exports cotton. The rest ot the industrial sector con- dramatically in the third quarter of 1994 with a 125 sists oi several miedium-scale enterprises and a large percent increase in average monthly cash receipts. number of micro-enterprises producing consumer Inflation, which increased more than 50 percent in the goods for the domestic market. fixe months following the devaluation, started to decline 36 Chad in the third quarter of 1994 and is not expected to increase while producers were paid at predevaluation prices, much over 40 percent for the full year, which is broadly COTONTCHAD made a sizable profit on the 1993/94 in line with the original program target. The devaluation crop, for the first time in many years. With booming triggered a significant supply response. Some 100,000 exports, the external current account deficit before offi- head of cattle were exported in the first half of 1994, as cial transfers is expected to remain at 20 percent of GDP, compared to 30,000 for the whole of 1993. Exports of compared with a 29 percent program target. The net gum arabic are expected to quadruple from 1993 to 1994 external assets of the banking svstem turned from a and to reach some $26 million, equivalent to 17 percent small negative amount at the end of 1993 to a positive of Chad's total export earnings in 1994. amount equivalent to 9 percent of GDP at the end of The supply response to the one-third increase in the September 1994, which greatly improved the liquidity cotton producer price announced after the devaluation position of the banking system. Commercial banks had has been strong and the 1994/95 harvest is expected to repaid credits to the central bank by June 1994 and had exceed the previous one by more than one-third. Since no need to borrow from the money market established part of the 1993/94 crop was sold after the devaluation, on July 1, 1994. 37 Chad Population mid-1993 (millions) 6.0 Income group: Low GNP per capita 1993 (US$) 210 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 [investment to GDP ratio (%) Gross domestic investment/GDP 8.2 9.4 8.5 9.4 10 Exports of goods and nfs/GDP 16.9 19.3 17.2 13.4 Gross domestic savings/GOP -19.4 -12.2 -13.6 -9.9 Gross national savings/GOP -33.1 -17.0 -17.2 -14.2 Current account balance/GOP -30.4 -24.3 -22.1 -23.5 179 u Interest payments/GOP 0.3 0.3 0.5 0.6 . Total debt/GOP 26.4 41.6 54.2 63.2 91.1 _________________ Total debVexports 192.7 212.5 321.2 371.6 458.2 99 89 90 91 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (%) (% of GDP) Agriculture 45.2 35.1 43.8 43.6 18r Industry 17.6 24.1 21.4 21.6 .. | Manufacturing 15.9 22.1 15.9 16.1 Services 37.3 40.8 34.8 34.8 . 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 1.6 6.9 6.0 -3.7 Industry 7.1 -9.9 -10.6 -3.8 Manufacturing 7.3 -9.2 -6.6 -3.0 Services 3.2 -0.1 -0.9 -11.0 0 a9s 8 90 91 92 93 94 GDP 3.9 1.3 0.3 -2.9 4.0 Agriculture CDindustry ElServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP I%) Prnvate consumption 102.7 91.3 99.1 93.4 20- General govemment consumption 16.7 20.9 14.5 16.6 Gross domestic investment 8.2 9.4 8.5 9.4 is Exports of goods and nfs 16.9 19.3 17.2 13.4 Imports of goods and nfs 44 5 40.8 39.3 32.8 .\ 1985-90 1990-94 1992 1993 1994 t (average annual growth) o Pnvate consumption 0.1 5.3 2.5 -3.3 .| 899 90 914 General govemment consumption 7.3 -9.1 -25.9 10.2 -5 Gross domestic investment 5.0 -2.9 -1.7 2.2 Exports of goods and nts 10.0 -15.8 -6.7 -25.8 . ° Imports of goods and nfs 0.0 -3.1 -9 4 -7.8 Gross national product 3.9 2.1 2.0 -1.5 4.0 5 5 Gross national income 2.9 3.8 2.0 0.4 .-GDI -.GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices sT (% change) 40 Consumer prices 5.2 0.6 -4.1 Wholesale prices .. Implicit GDP deflator -4 2 1.9 -5.5 0 6 43.3 20 Government finance 0 (% of GDP) 90 9193 9 Current budget balance -1.1 -5.3 -6.1 -7.8 10 Overall surplus/deficit -8.9 -22.5 -23.1 -16.5 -GDP del -'-CPI Note. 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 38 Chad POVERTY and SOCIAL 1985-90 1990-94 | Development diamond' (annual growth rates)Liexpcay Population 2.0 2.6 Life expectancy LaborMorce 1.9 2.0 most recent estimate Poverty level: headcount index (% of populalion) .. GNP / \ Gross Life expectancy at birth 47.9 per primary Infant mortality (per 1,000 live births) 120.0 I capita enrollment Child malnutrition (16 of children under 5) .. 7 Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 16.5 Illiteracy (% of population age 15+) 70.2 I Access to sate water Gross primary enrollment (% of school-age population) 65.0 _ TRADE (mi/lions US$) 1985 1990 1992 1993 1994 Export and import levels (mill. USS) Total exports (fob) 88 194 182 152 154 450 Cotton 44 96 96 57 54 40 Meat 26 53 50 44 50 1w J Manufactures 5 .. ..' Total imports (cil) 185 414 331 284 226 2 t Food.. . *. .25 Fuel and energy 1 9 .. .. .. . Capital goods 54 I... .. . Export pnice index (1987=100) . .. . . xC, Terms or trade (1987=100) .. .. .. .. .. 93 94 Openness of economy (trade/GDP,%) 61 60 56 46 | IExports lt Imports BALANCEofPAYMENTS 1985 1990 1992 1993 1994 1 (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 94 235 209 195 181 o Imports of goods and nfs 320 498 467 429 328 1 59 90191 92 93 94 Resource balance -226 -264 -258 -234 -147 I Net factor income -2 -18 3 -12 -8 -10 T i Net current transfers 7 -13 -35 -35 -8 t Current account balance .1s5 Before official transfers -221 -295 -290 -281 -163 | L After official transfers -87 -91 -86 -111 -39 -20 i I Long-term capital Inflow 68 129 74 135 71 1-25| Total other items (net) -3 -41 -16 -59 44 I Changes in net reserves 22 2 28 35 -76 -30 - Memo: Reserves excluding gold (mill. US$) 33 128 80 39 Reserves including gold (mill. US$) 37 132 84 43 Conversion rate (local/US$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%) Long-term debt/exports 160.4 187.6 298.2 345.9 429.8 1 *I IMF crediVexports 12.1 12.8 13.4 13.6 22.1 Short-term debt/exports 20.2 12.1 9.6 12.1 6.3 Total debt service/exports 17.6 5.1 5.2 6.1 144 75 PNG GOP ratios ag Prvt. Long-term debt/GDP 21.9 36.7 50.3 58.9 85.5 so Goff tMF credit/GDP 1.7 2.5 2.3 2.3 44 Short-term debt/GOP 2.8 2.4 1.6 2.1 1 3 Long-term debt ratios Pnvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 Private creditors/long-term 18.5 1.9 1.1 1.0 0.8 B 89 90 91 92 9 c Official creditors/long-term 81.5 98.1 98.9 99.0 99 2 The development diamond shows tour key indicators of development in the country (in bold) compared with its income-group average It data are missing. the diamond will be incomplete 39 Comoros lhe Islamic Federal Republic of the Comoros be- Recent Economic Developments T came independent in 1975. The Comoros is an archipelago of three islands, inhabited by a In 1991 the government launched an adjustment pro- largely homogeneous Islamic population of about grain to address the macroeconomic imbalances and 530,000 with a GNP per capita of $560 in 1993. It is remove some of the structural constraints to growth. The predominantly rural and highly dependent on external program, supported by IDA and the IMF, focused on assistatice. Agriculture and services account for 89 per- restoring macroeconomic stability, beginning the proc- cent of GDP, and construction and manufacturing around ess of improving public-sector performance and estab- II percent. The industrial sector is limited to export crop lishing a favorable environment for private activity. processing and a few consumer goods supplying the After initial delays caused by an unsettled political cli- domestic market. Tourism hias started to develop and mate in which the fiscal situation deteriorated further, shows promising growth potential. The Comoros' social the program accelerated. The authorities corrected ear- indicators compare favorably with the average for Sub- lier slippages. especially in public-sector performance, Saharan Africa. Life expectancy at birth is 56 years and and implemented the rest of the program satisfactorily. the infant mortality rate is 89 per 1.000. Between 1975 In January 1994, inabid toenhancethecompetitiveness and 1992. primary school enrollment increased from 46 of exports and improve economic performance, the percent to 75 percent of the school-age group. authorities devalued the Comorian franc by 33 percent In 1990 the Comoros introduced a multiparty system in foreign currency terms. at'ter more than a decade ot' one-party rule. Following UJnder the program, the government cut the size of open presidential elections in March 1990. a new con- the civil service by 35 percent and the military by athird; stitution was approved by referendum in June 1992. reduced civil servants' wages by 17 percent by end- Legislative elections in December 1993 gave an abso- 1993,anddecreasedcivil servants'allowancesforhous- lute majority to the political party supporting the presi- ing. transportation, and utilities. The government further dent. This progress toward democratization has, reduced the scope of the public sector by withdrawing however, been accomilpianied by political tension and from commercial and productive activities carried out t'requent changes ot governmient. The latest change took by parastatals. To stimulate private-sector development, place in April 1995. it liberalized external tradeby abolishing importmonop- During the decade following independence real GDP olies on several products. including cement, tobacco, per capita grew at an annual average of3 percent. fueled higher-grade rice, and meat, and lowering the barrier to by an ambitious programii ot infrastructure investment. entry into vanilla exports by reducing the minimum This period of growth ended when these externally required quantity allowed to be exported from 15 to 5 financed projects were completed. and tinancial prob- tons. The authorities also launched a program of tax lems emerged. Over 1987-90) real GDP per capita de- reform. beginning with simplifying the tariff structure. clined at an annual average of 2 percent, and public Finally, the government reduced price controls to a t'inance deficits (before capital grants) averaged 12 per- dozen essential commodities and took steps to boost cent ot' GDP. External debt arrears accumulated, reach- private-sector know-how by creating a center to provide ing $44 million by end-1990. This poor economic technical support to small businesses, and simplified perforniance tollowing the "growth bubble" of foreign- administrative procedures for business creation. financed infrastructure projects underscored the severity Over 1991-93. the economy recovered moderately, ot the Conioros' developmental constraints: a narrow posting real GDP growth averaging 1.9 percent, com- export base concentrated on vanilla, cloves, and per- pared with an average of I percent over the previous tume essence t'acing volatile world demand, underdevel- three years. Agriculture accounted for most of the recov- oped human resources, weak economic management. ery. Domestic savings improved from negative 3.7 per- and an untavorable private-sector environment. cent of GDP in 1991 to zero percent in 1993. The 40 Comoros budgetary deficit (before capital grants) fell from 13.1 trol soil erosion and discourage consumption of the percent of GDP in 1991 to 7.4 percent in 1993, owing dwindling fuelwood supply through various measures, to expenditure cuts through civil service reduction. The including cross-subsidizing the price of kerosene. A external current account deficit (before capital grants) national environment action plan including a long-term was marginally reduced from 11.1 percent of GDP in environment strategy was adopted in 1994 and contains 1991 to 10.5 percent in 1993, as imports declined in integrated conservation measures to protect the fragile response to the reduced aggregate demand pressure, ecosystem and develop local capacity to manage envi- exports began to recover, and tourism receipts started to ronment issues. increase. A 1 2 percent annual increase in tourist arrivals over The economy has begun to respond favorably to the 1991-94 attests to the growth potential of this sector. To devaluation. In 1994. although real GDP growth was guide and ensure the sustainable development of tourism, still low at 1.4 percent, domestic savings modestly in- the authorities plan to prepare a tourism strategy and a creased to a positive 0.4 percent of GDP. Exports of master plan for the sector. Development of the manufac- cloves and perfume essence rose more than 50 percent, turing sector is constrained by the small domestic market, albeit from a low base. Although this was offset partly high production costs, and a shortage of skilled labor. As by a 25 percent decline in vanilla exports from an external communications improve and the Comoros exceptionally high level in 1993 (when about 20 percent emerges from its relative isolation to develop closer links were re-exports of vanilla from Madagascar), it contrib- with the rest of the world, there is scope to enhance uted to a slight improvement in the external current efficiency in existing services and move to new ones account deficit to 10.3 percent of GDP. The inflation rate through training, market research, and promotion. rose by some 20 percent during 1994 lollowing the The recent devaluation of the Comorian franc. com- devaluation, but there are indications that the inflation bined with policy measures to protect competitiveness spurt has faded in recent months. gains. stimulate private sector development, and en- Fiscal performance in 1994 was, however, weak ow- hance labor skills, should help the Comoros achieve its ing to a major shortfall in revenues, which declined to development potential and accelerate sustained eco- 16.6 percent of GDP, compared with 20 percent in 1993. nomic growth. The Comoros is also opening its econ- This was due partly to low imports and partly to weak- omy more to the outside world, relying in part on its ness in tax administration. The wage bill went up 11 participation in the Cross Border Initiative adopted by percent, but the increase was more than offset by savings the countries of East and Southern Africa and the Indian on goods and services and transfer payments. However, Ocean to stimulate trade and investment among them- because of major shortfall in revenues, the overall budg- selves and with the outside world. The liberal trade and etary deficit widened to 12 percent of GDP. and salary investment policies to be undertaken in the context of payments were two months late by end- 1994. The gov- this initiative should provide increased growth opportu- ernment has adopted corrective measures to increase nities for the Comoros. fiscal revenues and control expenditure that should im- The potential for accelerating long-term economic prove fiscal performance in 1995. growth in the Comoros is burdened by population growth of over 3 percent a year. Although the govern- Medium-Term Prospects ment has taken steps to encourage birth spacing, unless population growth can be significantly reduced, the The Comoros has unrealized economic potential in scope for increased domestic savings and higher living tropical agriculture, fishing, tourism, and labor-inten- standards will be limited. sive light manufactures. Agriculture will remain the The government's medium-term objectives are to main source of growth in the foreseeable future. An increase GDP growth from an estimated 1.4 percent in Agriculture Strategy Study, completed in 1993 with 1994 to 3.5 percent in 1997. This growth is expected to World Bank and UNDP assistance. identified important be supported by investment averaging about 19 percent opportunities to increase production and diversify ex- of GDP. External sources will still provide the bulk of port into fruits and flowers, herbs and spices, and quality financing for investment, although domestic sources are perfume essence by rationalizing farming systems to expected to contribute an increasing share owing to increase productivity, improving agricultural market- expected improvements in public finance predicated on ing, reviewing land tenure policy, and preserving the enhanced revenue performance as a result of more effi- fragile ecosystem. The government has started to review cient tax administration and greater discipline in current land-use rights and will soon initiate a consultation expenditure. The consequent restraint in aggregate de- process with the population over legislative arid admin- mand would result in the external current account deficit istrative structures to resolve tenure issues. At the same (before capital grants) improving from 10.3 percent of time, environmental actions have been initiated to con- GDP in 1994 to 8.8 percent by 1997. 41 Comoros Population mid-1993 (thousands) 471 Income groUp: Low GNP per capita 1993 (US$) 5S0 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 Invetmes t to GDP ratio %) Gross domestic investmentVGDP 32.8 20.2 20.2 14.6 21.3 30 T Exports of goods and nfs/GDP 17.0 11.7 16.4 19.0 17.8 Gross domestic savings/GDP -0.3 -5.5 0.6 1.1 4.5 20 Gross national savings/GDP -2.1 7.8 4.0 5.8 11.0 Current account balance/GDP -40.4 -12.2 -16.1 -10.8 -10.4 10 Interest payments/GDP 1.3 0.2 0.8 0.2 0.0 Total debt/GOP 117.1 75.7 69.3 73.4 86.2 0 Total debVexports 542.8 466.2 290.7 333.5 346.7 88 89 90 91 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Shares of GDP by sector (%) Agriculture 36.1 41.4 39.6 39.0 36.9 .n0 I Industry 14.1 8.3 11.9 12.1 11.3 I Manulactunng 3.7 4.2 4.4 4.2 3.9 Services 49.8 50.3 48.5 48.9 51.8 1985-90 1990-94 1992 1993 1994 50 (average annual growth) Agriculture 3.3 0.4 -0.8 -0.7 2.8 Industry -9.5 12.7 21.5 10.3 1.0 Manufacturing 4.6 2.4 5.6 3.6 -3.2 Services 1.6 0.1 -0.1 0.9 -0.9 | 98 89 go 91 92 93 94 GDP 1.1 1.4 1.6 1.3 0.8 *Agriculture Mlndustry OSerces GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 GrowthratesofGOlandGOP(%) Pnvate consumption 72.7 79.7 77.4 77.5 74.4 |5 General govemment consumption 27.5 25.7 22.0 21.3 21.1 40 Gross domestic investment 32.8 20.2 20.2 14.6 21.3 Exportsofgoodsandnts 17.0 11.7 16.4 19.0 17.8 30 Imports of goods and nfs 50.1 37.3 36.0 32.5 34.7 20 1985-90 1990-94 1992 1993 1994 1/ (average annua/ growth) I o Pnvate consumption 2.7 -0.6 0.4 0.7 -4.7 1 go 94 General govemment consumption 0.4 -4.7 -7.3 0.0 -8.0 Gross domestic investment -8.0 -1.2 40.7 -27.0 29.9 -20 Exports of goods and nts -2.2 13.5 -4.0 20.6 -5.4 -30 Imports of goods and nls -2.8 -3.6 4.3 -5.9 -10.3 Gross national product 1.4 1.6 3.3 0.5 0.3 -40 Gross national income 1.1 0.8 3.4 0.4 -2.8 |GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 |ChangeofGOPdeflatorandCPI(%) Domfestic prices 125 - (% change) 20 Consumerprces . .. . .. ..prio Wholesale prices .. .. .. .. .- t Implicit GDP deflator 7.1 3.8 -0.4 1.4 22.8 10 + Government finance |_ o _ = _ _ _ (% of GOP) 8D 90 91 92 93 94 Current budget balance -5.3 -2.0 -2.6 -3.1 Overall surplus/deficit -19.7 -16.6 -18.9 -11.9 -21.8 -GDPdef. -CP1 Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 42 Comoros POVERTY and SOCIAL 1985-90 1990-94 I Development diamond' (annual gin wIl rates) Population 2.6 2.8 Liie expectancy Labor force 2 5 2.6 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 56.4 per pnmary Infant mortality (per 1,000 live births) 92.4 I capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 55.0 Energy consumption per capita (kg oil equivalent) 29.7 1 Illiteracy (% of population age 15+) Access lo safe water Gross primary enrollment (% of school-age population) 79.0 A TRADE (millions US$) I 9B6 1990 1992 1993 1994 Export and Import levels (mill. US$) Total exports (fob) 15 18 21 22 16 ao Vanilla 11 9 16 17 11 170-b Girofle 3 1 0 1 1 6 Manufactures . *lx E I Total imports (cif) 40 57 74 63 52 50 1 1 | Food 6 10 13 10 9 1111401111 Fuel and energy 4 6 7 6 6 30I~ Export price index (1987=100) '° Import price index (1967=100) .. ..6 Terms of trade (198Z=tOO0) . .. . .. . rso F9 90 91 92 93 94 Openness of economy (trade/GDP.%) 67 49 52 52 52 flExports olmports BALANCE of PAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current ccount balance to GOP ratio (%) Exports of goods and nfs 20 29 43 45 40 0 - 9FT ++ Imports of goods and nis 64 91 94 82 76 89 92 Resource balance -44 -62 -51 -37 -36 -s - I i Net factor income -1 -1 4 0 0 I Net current transfers 0 33 5 10 14 10 - Current account balance Before official transfers -46 -30 -42 -27 -22 .15 - After official transfers -14 -7 -15 2 -2 Long-term capital inflow 20 0 2 -1 1 -20 Total other items (net) 0 -6 7 2 -3 I Changes in net reserves -6 12 6 -3 4 25 Memo: Reserves excluding gold (mill. US$) 12 30 27 Reserves including gold (mill. US$) 12 30 27 Conversion rate (locaWIUS$) 449.3 272.3 264.7 283.2 416.4 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt*(%M Long-term debt/exports 525.0 433.1 270.3 306.9 342.9 1'° - IMF crediVexports 0.0 0.0 1.9 2.2 1 9 Short-term debVexports 17.8 33.1 18.5 24.5 1.9 Total debt service/exports 8.9 1.8 6.3 5.3 1.9 1 OPNG GDP ratios | Prvt. Long-term debtVGDP 113.3 70.4 64.5 67.6 85.3 5 - , Off IMF credit/GDP 0.0 0.0 0.5 0.5 0.5 Short-term debtVGDP 3.8 5.4 4.4 5.4 0.5 25 - Long-term debt ratios Prvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed I 9 Private creditorsAtong-term 0.2 0.0 0.0 0.0 0.0 I s 9 90 91 92 93 94 Official creditors/long-term 99.8 100.1 100.0 100.0 100.0 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing. the diamond will be incomplete 43 Congo O 'il has been Congo's blessing and curse since the The state dominated productive and commercial ac- early 1970s, dominating the economy, finances, tivities through a network of public enterprises whose and the behavior of policymakers. Oil wealth management was primarily concerned with rent-seek- accelerated Congo's annual rate of economic ing, patronage, and satisfying social objectives. At the growth from 2.8 percent over 1970-72, to 7.8 percent heart of the public enterprise network are six large during 1978/79, and to 8.4 percent over 1982/85. Oil companies - petroleum refining, distribution of petro- wealth also pushed Congo's per capita income to one of leum products, transport, electricity, telecommunica- the highest levels in Sub-Saharan Africa, about $1,280 tions, and water - whose inefficiency not only drains in 1982. Since then, however, softening oil prices and the budget but severely constrains economic growth, an overvalued CFA franc combined with accumulated particularly with regard to the private sector. These errors of past economic policies to trap Congo in a enterprises are close to bankruptcy because of poor protracted economic and financial crisis. management, excessive staffing, and artificially low tar- Congo failed to reduce its expenditures in response iffk. Petroleum led the authorities to neglect other sec- to collapsing oil revenues. The government assumed im', where Congo had historically had a comparative that the fall in oil prices was transitory and continued to a.d\antage. By the late 1980s the volume of timber live beyond its means. The fiscal deficit grew consider- exports had declined to 50 percent of 1970 levels, as a ably over time, from 8.2 percent of GDP in 1986 to 21.5 result of transport bottlenecks and excessive handling percent in 1993. The government financed the deficit costs. Sea, air, and road links declined for the same through increased indebtedness, domestically and exter- reasons, and the Congo lost its position as transit center nally, and by accumulating arrears. Occasionally, the for neighboring countries. Development of agriculture, government resorted to mortgaging future oil royalties, vital for the diversification of the economy, was handi- aggravating deht-management problems. By 1993 capped by reliance on poorly managed state enterprises, Congo's external debt had reached about $5. I billion, by the rundown rural road network, and by the absence equivalent to 2 IO percent of GDP. Notwithstanding debt of private transport. As one of Africa's most urbanized reductions by some key donors following the CFAF societies (60 percent), Congo could not cope with the devaluation, Congo's $4.7 billion debt accounted for challenge of continued urban migration, which placed 317 percent of GDP at the end of 1994. The economy unbearable pressures on the highly subsidized social remained generally stationary over 1986-92, declining services and public utilities. Its once high indicators of at 1.5 percent in 1993 and 4.6 percent in 1994. Per capita achievement in health and education were progressively income declined from $1,040 in 1992 to $950 in 1993. eroded as government failed to sustain key nonsalary Following socialist-inspired state interventionism, the expenditures. state became the dominant producer ot goods and serv- ices and the main employer in Congo. After indiscrimi- Poverty and Social Indicators nate and politically motivated recruitment over the years, the total public work force climbed to 80,000. One Congo's precipitous decline in real per capita GDP out of every 25 Congolese is a civil servant, one of the since 1984 resulted in increased poverty in urban and highest ratios in Atrica. The civil service wage bill has rural areas. While labor supply expanded by about 25 consequently become the chief burden on the budget, percent, employment in the formal sector increased by absorbing 86 percent of annual revenues during fiscal only 15 percent, swelling the number of the unem- 1992. With the decline in revenues. government slipped ployed. Unemployment among urban youth is esti- behind in paying salaries: tour months in 1992. three in mated at 40 percent. Rural poverty increased as men 1993. and another three in 1994. tor a total of ten continued to seek urban jobs, leaving women and chil- months. dren to till the land. 44 Congo Health conditions are alarming: female mortality re- supported public sector reforms to reduce the civil serv- lated to childbirth is high, between 600 and 900 per ice, set the framework for privatizing public enterprises, 100,000 live births. Child mortality is also high (124 per and introduce a new petroleum law. 1,000 live births and 96 per 1.000 for children under five). Malaria, tuberculosis, and parasitic infections are Medium-Term Prospects common. Malnutrition affects 20 percent of children, and 40 percent in some isolated areas. AIDS has a major Congo's potential in oil. forestry, agriculture, and manu- impact (120,000 seropositive cases so far), with 7 to 10 facturing should permit real annual GDP growth of percent of urban women affected. Many children are about 5 percent a year after 1996. In response to the born seropositive, and the pool of orphans is growing envisaged reforms of the trade regime and regulatory (15,000 in 1994). The health sector work force is rarely framework and substantial new investments in oil, total paid, poorly motivated, often unqualified, and badly private investments in the oil and nonoil sectors are deployed. The health budget can only equip and supply expected to rise from 17 percent of GDP in 1993 to 27 a few curative facilities, neglecting primary health care. percent in 1996. Public sector investments are projected State agencies for procuring and producing medicine are to recover from less than I percent of GDP in 1993 to inefficient, leading to prices beyond the reach of the about 7 percent in 1996. These investments are expected average citizen. to be concentrated in the priority sectors of health, Education and training mirror health in terms of education, rural roads, and transport. To finance this budgets, personnel management, equipment and sup- investment level, domestic savings will need to increase plies, and the dilapidation of physical plant. Internal substantially. Private savings should be stimulated by efficiency is low. In primary school 30 to 40 percent of the recovery of economic growth, the improvement in every class has students repeating or "tripling" the the external trade position, and the increased incomes of school year. Only 75 percent of entering students reach domestic food producers. As a result of public enterprise the last grade of the six-year primary cycle, taking on reforms and other fiscal measures, public sector savings average II years to do so. Secondary education is are projected to turn from negative in 1993 to about 10 equally inefficient, as only 20 percent of entering stu- percent of GDP in 1997; this may be an ambitious target, dents obtain baccalaureates. Instruction is sacrificed to but it is feasible in view of Congo's prospects for im- meet high social costs, notably student stipends. Train- proved cash flow from the development of the Nkossa ing has been more seriously disrupted by tight budgets, oil field. as materials are absent, and skilled trainers have left for Government strategy focuses on improving public more remunerative private employment. sector efficiency through better public resource manage- ment and public enterprise reforms; strengthening pro- Recent Political Developments duction capacity through trade and regulatory reforms and removing impediments to private sector growth; and The economic crisis led to the demise of the Marxist- developing human resources and reducing poverty. oriented regime. A national conference in 1991 was Government options are constrained by aggressive labor followed by presidential and legislative elections in July unions, rigidities in spending, and large debt service 1992 and the establishment of Congo's first democrati- obligations. Despite the erosion in their position over cally elected government that August. The situation the last few years, labor unions still wield enough power remained unsettled, however, and by mid- 1993 militias to destabilize Congo's politics. In 1995 wages and trans- of the various political factions were fighting in the fers cannot be easily compressed below their 1994 lev- streets of the capital, Brazzaville, leading to the deaths els, though they will have to be adjusted further in 1996 of hundreds and the flight of several thousands from and beyond to help establish fiscal equilibrium. Mean- neighborhoods that sustained serious damage. In early while, settling salary arrears is at the top of the unions' 1994 political calm was reestablished through interna- agenda. Moreover, reform has its own costs, namely the tional arbitration sponsored by the European Union and separation and retraining costs related to privatization. the Organization of African Unity The government re- Finally, mortgaging of future oil revenues leaves limited form program, prepared to take advantage of the CFAF cash to cover other large budgetary demands. devaluation, was approved by the National Assembly early in 1994. In January 1995, following intensive talks Ex I Deb with the opposition parties, a government of national xterna ebt unity was established, with a sharp reduction of cabinet Poor economic and financial management has resulted members by consolidating ministries. The IMF ap- in mounting external debt obligations and arrears over proved a standby arrangement in May 1994. and IDA the last decade. This has seriously affected Congo's approved an economic recovery credit in June 1994 that access to public and private financial sources. However, 45 Congo with the return to peace and the implementation of ness. France canceled arrears of $97 million, the Paris far-reaching economic reforms by a democratic govern- Club rescheduled $1.3 billion, and the London Club ment, donors made major concessions during 1994 to agreed to reschedule $439 million. However, Congo did help Congo reduce the burden of its external debt not implement the London Club accord because of the through rescheduling, consolidation, or debt forgive- unavailability of fresh money. 46 Congo Population mid-1993 (millions) 2.4 Income group: Lower-middle GNP per capita 1993 (US$) 950 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 199 1993 1994 hnvestm.ntoGPratio(%) Gross domestc investment/GDP 30.3 15.9 17.2 15.5 .. Exports of goods and nfs/GDP 56.8 50.2 41.7 43.9 Gross domestic savings/GDP 31.1 26.9 18.7 23.3 .. 20 Gross national savings/GDP 18.7 11.9 10.5 8.7 Current account balance/GDP -9.3 -11.3 -14.2 -9.0 -12.9 10 Interest payments/GDP 6.2 4.3 1.0 0.8 4.8 Total debt/GDP 141.2 176.2 168.3 203.8 313.2 o Total debt/exports 248.3 328.2 375.1 425.9 .. 8s as s0 9t 92 03 a GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Shase o GDP by ctor(%) Agnculture 7.4 12.9 11.6 10.8 10.2 10 n Industry 53.9 40.6 34.7 37.8 43.7 Manufacturng 5.6 8.3 8.9 9.0 7.3 Services 38.6 46.5 53.7 51.4 46.2 1985-90 1990-94 1992 1993 1994 * (average annual growth) Agficulture 5.1 -2.8 3.2 -8.8 3.6 Industry 2.8 3.4 6.5 7.2 -2.7 Manufacturing 2.2 -4.7 -0.9 -3.5 -16.3 Services -2.5 -2.6 -0.5 -7.1 -8A 0 o i 9 D 9 GDP 0.3 -0.1 2.7 -1.5 -4.6 *Agricuflure *industry oSrcis GDP: EXPENDITURE (% of GDP) 1985 1990 1 m 1993 1994 Grow .t. of GO nd GDP(%) Prvate consumption 52.5 52.9 56.2 53.7 .. 30 General govemment consumption 16.5 20.1 25.1 23.0 .. 25 Gross domestic investment 30.3 t5.9 17.2 15.5 20 Exports of goods and nfs 56.8 50.2 41.7 43.9 15 Imports of goods and nfs 56.0 39.1 40.2 36.1 10 1985-90 1990-94 1992 1993 1994 | (average annual growth) o Prvate consumption -0.3 -3.2 t.8 -16.4 5 /0 sS General govemment consumption -3.6 -2.2 -0.4 -14.8 . *ro Gross domestic investment -20.4 -6.7 -21.2 -15.1 -15 Exports of goods and nfs 4.8 5.7 9.0 12.6 .20 Imports of goods and nls -9.2 -4.1 -3.2 -17.6 -25 Gross national product 0.2 -2.8 5.2 -5.2 -17.2 Gross national income -2.8 -4.4 0.0 -14.8 *GDI -GDP PRICES and GOVERNMENT FINANCE 19685 1990 1992 1993 1994 ChangeofGDPdefltor andCPI(%) Domestic prices |5 (% change) 30 Consumer pnces 5.6 -4.8 2.2 25 Wholesale prices 6.6 1.9 1.7 Is Implicit GDP deflator 2.5 -0.9 -5.3 -4.3 30.3 10/ Government finance ° (% of GDP) 59 04 Current budget balanoe 12.2 -2.8 -14.4 -18.6 10 Overall surplus/deficit -4.8 -7.1 -19.8 -21.6 .. |-GDPd91. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 47 Congo POVERTY and SOCIAL (annual growth rates) 1985-90 199-f94 Deveopment diamond* Population 3.0 3.0 Life expectancy Laborforce 1.9 2.3 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Lile expectancy at birth 51.0 per primary Infant mortality (per 1,000 live births) 83.8 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 165.4 Illiteracy (% of population age 15+) 43.4 Access to safe water Gross primary enrollment (% of school-age populaton) .. I TRADE (millions US$) 1985 1990 1992 1993 1994 nEprt and import levels (mil USS) Total exports (fob) 1,145 1,389 1,189 1.116 .. 1.400 Fuel 952 1,076 T 7 Timber 60 74 1.200 4 Manufactures 47 34 ' 1° t Total imports (cif) 746 550 | 800 a Food 30 24 .. _ Fuel andi energy 18 10 . m9 3 9 Capital goods 202 197 .400 Export price index (1987= 100) 97 2. . 200 Import price index (1987= 100) 154 4 . Terms of trade (1987=100) 63 88 89 90 91 92 93 94 Openness of economy (trade/GDP, %) 113 89 82 80 lExports tImports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 [ n n n-r o (millions USS) [Current account balance to GDP ratio (%) Exports of goods and nfs 1,219 1,494 1,267 1,191 1,608 o-- Imports of goods and nfs 1,156 1,282 1,294 1,098 1 499 T8 90{9i 92 93 94 Resource balance 64 212 -27 93 109 5 Net factor income -228 -465 -304 -258 -303 I _ I Net current transfers -38 -63 -69 -60 -10 10 Current account balance Before official transfers -202 -316 -400 -225 -204 -'5 After official transfers -161 -250 -355 -197 -204 Long-term capital inflow 207 -675 -250 -101 174 20 Total other items (net) -48 1,039 594 568 219 1 Changes in net reserves 2 -114 1 -1 -3 25 Mfemo: Reserves excluding gold (mill. US$) 4 6 4 1 Reserves including gold (mill US$) 8 10 8 6 Conversion rate (local/US$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export ratIos Long-term debtUexpons 192.3 2784 304.5 344. 1 100 IMF credit/esports 0.8 0.7 0.4 0.4 Shor-term debt/expors 553 4900 70.1 81.4 Total debt service/exports 34.4 35.3 12.8 10.6 75JPNG GDP ratios Es PMv. Long-term debt/GDP 109.3 149.5 136.6 164.7 290.3 50 a.2 Off. IMF credit/GDP 05 04 02 02 1' Short-term debt/GDP 31.4 26.3 31.5 38.9 21.6 Long-term debt ratIos Prvate nonguaranteed/long-term 0.0 0 0 0.0 0.0 0 0 Public and publicly guaranteed Private creditors/long-term 59.4 27.6 23.1 30.3 22 7 as 89 90 91 92 93 94 Official creditorsAlong-term 40.6 72.4 76.9 69.7 77.3 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete 48 Cote d'Ivoire he Republic of Cote d'lvoire is a lower-middle- spending that followed the cocoa and coffee price booms T income country, with a 1993 GDP per capita of over 1975-77. about $630. Its economy is predominantly ag- Adjustment policies were partially successful up to ricultural, with about two-thirds of the active 1987 in reducing the main internal and external imbal- population engaged in farming, forestry, and fishing. ances. The government pursued contractionary fiscal The agricultural sector, including forestry and agro- and monetary policies that sharply reduced the budget industries, accounts for about 40 percent of GDP deficit and inflation. Moreover, the adjustment effort while generating 70 percent of export revenues in 1994. benefited from the depreciation of the French franc and, Exports continue to be dominated by cocoa, coffee, and hence, the CFA franc against the dollar, and from a timber. short-lived recovery of cocoa and coffee prices in the C6te d'Ivoire's population has grown 3.8 percent a mid-1980s. However, with the renewed decline of those year since the mid-1970s, reaching about 13.5 million prices on international commodity markets, the govern- by end-1994. High population growth coupled with ment delayed commensurate adjustments in producer economic decline has resulted in a steady fall in living prices, and the fiscal deficit again increased to unsus- standards. GNP per capita in 1993 was estimated at tainable levels, reaching 17 percent of GDP in 1989. about $630, compared to well over $1,000 in the early This sharp increase in the fiscal imbalance also reflected 1980s. Social indicators have also been deteriorating, more fundamental problems, including downward ex- reflecting the effects of economic crisis and a neglect of penditure rigidities, especially of salaries and wages, basic social services. high debt-service obligations, and the real appreciation The government of Cote d'lvoire has responded of the CFA franc as the French franc appreciated against decisively to the lingering economic crisis in the coun- other major currencies. try itself and in the CFA franc zone and joined with the C6te d'lvoire's renewed fiscal and balance-of-pay- other CFA zone member countries in devaluing the CFA ment crisis at the end of the 1980s revealed inadequate franc 50 percent against the French franc in January macroeconomic policies and persisting distortions in the 1994. economy, including a trade regime characterized by relatively high tariffs and dispersion levels and a pleth- Economic Developments in the 1980s ora of nontariff barriers. Domestic saving had declined, and there were solvency and liquidity problems in the C6te d'lvoire is emerging from thirteen years of unsuc- domestic banking system. Public intervention in agri- cessful internal adjustment that failed to reverse eco- cultural pricing and marketing was combined with lack nomic decline and reduce growing social and poverty of incentives to diversify and reduce dependence on a problems. The economic and social crisis started at the few primary commodities. A generally inefficient and beginning of the 1980s when Cote d'Ivoire's macroe- bloated public sector with limited capacity to provide conomic imbalances had grown to unsustainable levels, services was evidenced by poor health indicators and with a budget deficit of about 10 percent of GDP and a low literacy levels. current account deficit of about 17 percent of GDP. C6te d'lvoire started to encounter serious debt-servicing problems as a result of the rapid buildup of external debt during the second half of the 1970s. Trade barriers and In the early 1990sthe government undertook alasteffort price interventions increasingly distorted domestic mar- to restore international competitiveness and growth by kets, contributing to inefficient resource allocation, and exclusively relying on internal adjustment measures un- there was a serious deterioration in public sector man- der a medium-term economic framework supported by agement, especially among public enterprises. These the World Bank and IMF. Although the government problems were in essence an outgrowth of the surge in made progress in cutting the primary deficit in the early 49 CMte d'lvoire 1990s, its failure to effect a real depreciation of the CFA coffee prices, its producer price was raised to CFAF 630 franc with its internal adjustment measures and contin- per kilogram in February 1995. ued high outlays for public salaries, averaging 12.5 While the stabilization measures were quickly and percent of GDP- 60 percent of primary expenditure- fully implemented, the government has been more hesi- over 1990-93. resulted in the program falling short of tant in implementing its adjustment program in trade, expectations. With the deepening of the recession in privatization, and human resources development. Priva- 1993. the primary deficit again increased, reaching 3.5 tization advanced slowly during the year as the privati- percent of GDP. Given the government's inability to zation law was only adopted in June 1994, as generate primary surpluses. its efforts to settle domestic reorganization of the privatization committee caused and external arrears also faltered, arrears accumulated delays and there were continuing institutional weak- rapidly and reached the equivalent of 60 percent of GDP nesses. Moreover, the government's social programs, by end-1993. including the many social funds created after the devalu- As a result of these macroeconomic difficulties, the ation, were ineffective during 1994, and there is evi- government and others in the CFA zone countries deval- dence that urban poverty increased. Conversely, the ued the CFA franc 50 percent against the French franc substantial increases in producer prices have attenuated in January 1994. Preliminary results for 1994 suggest the poverty situation in the rural areas. Progress was, that with this parity change and the implementation of however, made in some key areas, including import fiscal, monetary. and structural adjustment policies, the tariff reform, reduction of nontariff barriers, and adop- Ivorian economy has been able to maintain and tion of new labor and investment codes. strengthen its international competitiveness and restore economic growth. Poverty and Social Indicators Inflation fell to predevaluation levels eight months after the parity change. During the last quarter of 1994 The economic decline since 1987 has caused a steady the monthly inflation rate was 0.3 percent. This was decline in real per capita GDP on the order of 30 percent largely achieved by a restrictive wage policy coupled and a deterioration of social indicators to levels that with a limited increase in the money supply. Base wages pose a serious challenge to medium- and long-term increased on average only by 1O percent, thereby reduc- development. Recent estimates indicate that more ing the government's wage bill from almost 13 percent than 60 percent of the population falls below the of GDPin 1993to9.5 percentofGDPin 1994.Thesame poverty line, compared to about 30 percent in the policy stance was adopted by the private sector. The mid-1980s. government also unblocked on schedule the three- Although basic services have been protected more in months price freeze on three products it had enacted urban areas, the incidence of poverty increased much immediately after the devaluation and raised utility tar- more rapidly in urban areas than in rural areas. The iffs, including water (15 percent), electricity (20 per- proportion of urban dwellers in the total number of poor cent), and public transport (40 percent). increased from about 20 percent in 1985 to about 30 Fiscal policy has been the cornerstone of the stabili- percent in 1992. This is due in part to a high urbanization zation program. The government met its revenue and rate, rising levels of unemployment, and a reduction in expenditure targets throughout 1994 and generated its real wages. The extent and trends in rural poverty differ first primary balance surplus in the 1990s. The introduc- markedly according to region. The situation deteriorated tion of a major tax reform (reduction of VAT, petroleum most in the West Forest because of falling cocoa and taxes, and import tariffs) in early 1994 helped dampen coffee revenues, especially after 1989, when producer inflationary pressures but also reduced revenue as a prices of these crops were cut in half. The Savannah, share of GDP and, therefore, required compensatory however, is still the poorest region, containing about measures in the form of reintroducing export taxes on one-third of all poor. coffee and cocoa. Although these export taxes are Budgetary problems before the devaluation seriously needed for fiscal reasons, the government is committed constrained efforts to implement human resources de- to reduce their importance within overall government velopment programs. While the share of the govern- revenue and pass through the positive effects of the ment's budget going to education and health was devaluation to farmers -which has become easier in maintained, the government was less successful in reo- the wake of buoyant international prices for cocoa and rienting intrasectoral allocations toward primary educa- coffee. To this end, the government has repeatedly in- tion and primary health care and reducing the urban bias creased the producer price for cocoa and coffee, from in social infrastructure. Moreover, prior to the parity CFAF 200 and 180 per kilogram, respectively, before change the rising share of salaries within the overall the devaluation to CFAF 315 and 530 per kg for the budget left insufficient resources for other inputs such 1994-95 crop season. Given the continued buoyancy in as textbooks and pharmaceuticals, aggravating internal 50 C6te d'Ivoire inefficiencies, and Cte d'Ivoire's health and education and fiscal policy reduced inflation to traditionally low systems deteriorated. levels and restored positive real interest rates. Financial Health care now reaches about 30 percent of the sector liquidity will be strengthened by government population and is clearly unsatisfactory in the face of efforts to clear its internal arrears to banks and suppliers high population pressures and new epidemiological by 1996. challenges such as the rapid spread of AIDS. Infant The government is seeking to increase public-sector mortality has only slowly fallen, affecting 91 out of efficiency and promote private development by bringing 1,000 live births in the early 1990s. Immunization levels to the point of sale the thirty-five remaining enterprises also compare unfavorably with those of other countries slated for privatization during 1995-97. In 1995 the in the region or with similar per capita income. government intends to privatize about ten public enter- The education system continues to suffer from low prises, and is implementing programs to strengthen the enrollment, low completion rates, high repetition, and institutional capacities of the finance, health, and edu- inefficient resource allocation. Although the govern- cation ministries, and further public efficiency gains are ment has made efforts to provide primary education for expected to be made through a decentralization policy its youth, it currently covers only an estimated 70 per- and an urban investment strategy. cent of school-age children. The large majority of chil- Trade liberalization will build on the progress dren who go to primary school either drop out in the achieved during the last four years. The average course of the primary cycle or end all formal schooling weighted tariff on taxable imports declined from 32 after primary education, and thereby risk joining the percent in 1989 to about 24 percent in 1993. Concomi- already large number of functional illiterates. Moreover, tantly with the devaluation, the government announced the absence of educational alternatives for those who a new tariff reform that cut import tariffs an average of cannot continue beyond primary education, and growing 20 percent and created a structure in the range of 0 to 35 unemployment, has led many children to repeat several percent. Government will examine the possibility of times their final year in primary school. A lack of pro- further reduction in tariffs and their dispersion levels, grams to maintain school facilities and provide afford- while, at the same time, broadening the base through able textbooks has also adversely affected the education elimination of exonerations. Most nontariff barriers will system. As a result, 46 percent of the population above be phased out by end-1995, with the exception of those the age of fifteen remains illiterate, while female illiter- identified in a restrictive list, and the number of products acy hovers around 60 percent. subject to price regulation will be reduced. Cote d'lvoire's agricultural policy aims at expanding The Structural Adjustment Program for 1995-97 and diversifying production through a flexible producer price policy, improvements in the incentive system, and After the CFAF devaluation the government reformu- reducing public intervention. To remove the restrictive lated its economic program and spelled out its new regulatory practices in the transport sector, the govern- stabilization and structural adjustment program in a ment plans to deregulate domestic and maritime trans- policy framework paper that is being updated to cover port, privatize the management of the rail system, and the 1995-97 period. The new program aims at increasing increase private sector participation in road mainte- real GDP growth to annual rates of 6.5 percent and nance. higher beginning in 1995; generating sustained and in- In an effort to reduce the natural growth rate of the creasing primary budget surpluses; strengthening exter- population, which is among the highest in Africa, the nal competitiveness through trade, price, and regulatory government is reorganizing and strengthening its family reforms; intensifying human resource development and planning services program. It also aims to increase lit- increasing efforts to alleviate poverty; and protecting eracy levels through increasing the net enrollment rate Cote d'lvoire's natural resource base. in basic education. Although the government has to Maintaining macroeconomic stability will be critical operate within the confines of a tight budget, it intends to attaining these objectives, and the government is to increase expenditures for these priority programs exerting strict budgetary discipline to generate the sus- mainly through the reallocation of resources. tained primary surpluses needed to cover an increasing Reducing poverty will remain a severe challenge to portion of the public debt. It introduced a series of tax the government. In the short term, the devaluation will measures in January 1994, including a VAT reform, have a more favorable effect on the rural than the urban revision of petroleum taxation, and the reduction of poor. This has prompted a differentiated government import tariffs. It also increased the civil service base response. While farmers suffered greatly from declining wage by a nominal 10 percent, which translated into a incomes prior to January 1994, the devaluation provided substantial decline in the real wage bill. After the initial them with a much-needed income boost through in- pass-through of the devaluation, a restrictive monetary creased producer prices, the most efficient and direct 51 CMte divoire means to alleviate poverty in rural areas in the short ment to structural change. With gradual but steady struc- term. As the real wage decline was more pronounced and tural reform, C6te d'lvoire should be able to accelerate unemployment has been increasing in urban areas, the growth to about 5 percent rather than to the higher government has been increasing resources to munici- growth rates anticipated by the government. palities to start labor-intensive public works and reha- Continued fiscal reform will be critical to the adjust- bilitation programs that will stimulate employment. ment effort. While government revenue will remain at about 21 percent of GDP. the government will reduce its Environment reliance on export taxation of cocoa and coffee to stimu- late growth in the agricultural sector. Its share of total Protecting the environment and managing the resource revenue will steadily fall over the next few years. To base has become a major objective for sustainable de- implement this reduction, the government hopes to velopment in C6te d'lvoire. The government is con- benefit from additional revenue from new oil and gas fronted with serious environmental problems, including production and a broader tax base, and aims to control deforestation, loss of biodiversity. soil degradation, primary expenditures, particularly the public wage bill. water pollution. and management of industrial and do- The economic recovery will be led by agriculture and is mestic waste. The government adopted a National En- expected to stimulate demand for labor and reduce pov- vironment Action Plan in December 1994 and intends to erty, especially in rural areas. Nontraditional agricul- draw up an environmental code and a general forestry tural exports should be a source of dynamism, growing plan. by about 12 percent annually during the second half of the 1990s. Medium-Term Prospects C6te d' Ivoire's economic growth potential has not been External Debt realized because of a combination of an unsustainable Cote d'lvoire's financing requirements will remain sub- macroeconomic situation emanating from large fiscal stantial over the next few years. Debt service will be deficits, an external debt overhang depressing national reduced by 50 percent through enhanced Toronto terms savings, distortions in trade and price policies, and a on Paris Club debt service and additional debt relief in human resources development program that paid insuf- the forim of debt forgiveness by France, Canada, Swit- ficient attention to basic social services. The devaluation zerland, and Germany. The government is seeking an triggered a promising start to overcoming these impedi- agreemilent with its commercial bank creditors, whose ments to growth, and the government's reform agenda debt has not been serviced since May 1987, to reduce aims at growth rates of 6.5 percent and higher over future debt service to levels consistent with the coun- 1995-2000. Based on C6te d'Ivoire's track record on try's debt-servicing capacity. On the basis of actual and structural reform, progress will likely be more gradual, anticipated debt relief, Cote d'lvoire's debt profile is slower, and uneven despite the government's comitni- expected to improve over the next tew years. 52 COte d'Ivoire Population mid-1993 (millions) 13.3 Income group: Low GNP per capita 1993 (US$) 630 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 invetmentto GDP ratio(%) Gross domestic investment/GDP 12.6 9.3 10.9 9.3 12.5 | 20 T Exports of goods and nfs/GDP 45.6 34.7 33.5 34.2 47.5 1 Grossdomesticsavings/GDP 25.8 14.6 16.4 16.2 25.3 Gross national savings/GDP 12.9 -1.4 -2.2 -3.0 1.7 l Current account balance/GOP 0.6 -14.0 -13.1 -12.0 -10. Ef l i Interest payments/GOP 9.3 4.5 4.0 4.0 4.7 Total debt/GOP 138.0 167.9 177.6 205.3 283.2 0_ . ___ _ _ _ _ _ Total debt/exports 301.3 461.9 526.3 596.3 598.9 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (%) (% of GDP) Agriculture 29.8 39.4 36.7 37.3 41.3 100 Industry 23.4 25.6 27.9 24.0 26.4 Manufacturing 15.2 - 21.7 25.9 Services 46.8 35.0 35.4 38.7 32.3 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 4.2 -0.9 -3.9 2.3 2.1 Industry 0.6 0.2 0.6 2.4 6.7 Manufacturing.. . Services -5.1 0.1 4.9 -3.0 1 99 6 - 88 89 90 91 9. \ 93 94 GOP -0.9 -0.2 0.0 -1.1 1.3 nAgricuiiure [illndustry DServices GDP: EXPE1NDITURE 1985 1990 1992 1993 1994 (% of GDP) Growth rates of GOI and GOP(% Pnvate consumption 60.3 67.3 65.9 63.4 57.9 \\ General government consumption 13.9 18.1 17-8 20.4 16.8 40 \\ Gross domestic investment 12.6 9.3 10.9 9.3 12.5 Exports of goods and nfs 45.6 34.7 33.5 34.2 Imports of goods and nfs 32.5 29.3 28.0 27.3 34.7 2/ 1985-90 1990-94 1992 1993 1994 0 (average annual growth) 91 9201 Provate consumption -0.3 -1.0 -0.5 -0.7 1.3 so General government consumption -0.6 -3.6 -4.3 -0. 1 -10.1 -20 Gross domestic investment -12.6 1.4 4.0 -30.8 19.3 s30 Exports of goods and nfs -1.3 -1.2 3.2 -1.7 -3.1 .40 Imports of goods and nfs -3.1 -5.8 2.7 -9.8 -10.2 Gross national product -1.5 -1.4 -0.1 -1.7 -33 5 Gross national income -4.1 -1.8 1.6 -3.2 -2.9 -GDI GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 40 (% change) Consumer prices 1.8 -0.8 3.5 2.8 Wholesale prices 20 Implicit GDP deflator 4.1 -7.9 -0.3 -0.4 39 4 Government finance o (% of GDP) 91 92 93 94 Current budget balance 8.9 -10.0 -9.5 -13.9 -7.4 10 Overall surplus/deficit 3.2 -12.8 -12.9 -16.7 -12.0 -GDPdei. -,-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 53 C6te d'Ivoire POVERTY and SOCIAL ___ 1985-90 1990-94 D.velopment diamond (annual growth rates) Lieepcac PopulatioT, 3.7 3.5 Lie expectancy Labor force 2.5 2.5 most recent estimate Poverty level: headcount index (O of population) GNP j Gross Life expectancy at birth 50.7 per -. primary Infant mortality (per 1o000 live births) 91.2 capita . enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 82.8 Energy consumption per capita (kg oil equivalent) 109.1 Illiteracy (% of population age 15+) 46.2 Access to sate water Gross primary enrollment (% of school-age population) 69.0 A TRADE 1985 1990 1992 1993 1994 | x-por-andimportlevels(mill USS) (millions US$E Total exponrs (fob) 2,761 3,003 2,841 2,605 2,689 1 3500T Cocoa 887 675 968 831 945 3.000 Coffee 618 241 373 206 250 '. Manufactires 728 1,204 683 573 571 2.500 I j Total imports (cill 1,721 2,095 2,271 1.948 1,732 2.01e Food 273 466 377 431 33 __00 Fueliand energy 379 569 511 430 418 Capital goods 446 419 531 332 .349 .0 1 Export price index (f98 7=100) 1 . 721 2 0 2 Import price index (1987=100) .. . . . Terms of trade (1987=100) .. 89 90 91 92 93 94 Openness of economy (trade/GDPR%) 78 64 62 62 82 1 [jExports ntlimports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 _ _ (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 3,160 3,431 3,398 3,193 3,176 0 Imports of goods and nis 2,173 2,900 2,838 2,548 2,323 -2 88 89 90 91 92 93 94 Resource balance 987 531 560 644 853 92 Net factor ,ncome -666 -1,415 -1,504 -1,447 -1,267 4i Net current transfers -279 -501 -379 -320 -312 6 Current account balance a I Before official transfers 42 -1,386 -1,323 -1.122 -726 .10 After official transfers 68 -1,294 -1,162 -1,023 -674 | Long-term capital inflow 242 -1,324 -154 -195 162 1 Total other items (net) -276 2,514 1,408 1.234 941 14 Changes in net reserves -34 105 -92 -16 -430 16 Memo: Reserves excluding gold (mill. US$) 5 4 7 2 Reserves including gold (mill. US$) 19 21 22 20 Conversion rate (local/US$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 r Structure of external debt (%) Export ratios I Long-term debt/exports 257.4 349.4 388.7 410.1 458.0 ro IMF credit/exports 20.8 12.0 7.8 6.8 4.7 Short-term debt/exports 23.0 100.5 129.8 179.4 136.1 Total debt service/exports 35.0 34.2 32.3 30.0 28.9 | o PNG GDP ratios ID lPMv Long-term debt/GDP 118.0 127.0 131.2 141.2 216.6 50 a Off. IMF credit/GDP 9.5 4.4 2.6 2.3 2.2 Short-term debt/GoP 10.6 36.5 43.8 61.8 64.4 25 Long-term debt ratios Pivate nonguaranteedilong-term 29.9 20.3 19.7 19.9 17.9 Public and publicly guaranteed I Pnvate creditors/long-term 37,8 24.1 20.3 19.7 17.6 6 89 90 91 92 93 94 Official creditors/long-term 32.2 55.6 60.1 60.4 64.6 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete. 54 Djibouti D jibouti became independent in 1977. A small cost of doing business, hinder economic development, country of only 23,200 square kilometers, it and put a strain on scarce budgetary resources. occupies a strategic location at the Horn of Af- rica. Its GNP per capita was estimated at $780 Recent Political Developments in 1993, even though living standards and social indica- tors were closer to lower-income Sub-Saharan African After political and ethnic tensions in November 1991 the countries. Two-thirds of its 600,000 inhabitants live in government allowed the creation of political parties. A the capital city; the rest are mostly nomadic herders. new constitution was approved in a referendum in Sep- tember 1992. Legislative elections in December 1992 Poverty and Social Indicators and presidential elections in May 1993 were boycotted, however, by most of the opposition. These uncontested The majority of Djibouti's population have poor nutri- elections led to the reelection of the sitting president and tional and health standards. Life expectancy at birth is his ruling party representatives. The main opposition low at 49 years and infant mortality high at 115 per 1,000. group claiming to represent the Afar minority - an Only 50 percent of urban dwellers have access to safe estimated 40 percent of population - resumed armed water, and the rural population suffers from an acute rebellion. In response, the government quadrupled its shortage of water. Primary school enrollment is 47 per- military forces, and military expenditure rose to 15 to 16 cent of the school-age group, well below the regional percent of GDP, compared to about 6 percent before average. Recent population growth has been estimated at 1991. Ethnic tensions remain high, and sporadic fighting 5 to 6 percent a year, of which 2 to 3 percent represents an continued until mid- 1994. A negotiated settlement of the influx of immigrants and refugees from neighboring coun- military conflict was agreed to by all parties and formal- tries. Some 130,000 refugees and immigrants have arrived ized in a peace accord signed in December 1994. from Somalia and Ethiopia since the 1980s, putting heavy pressure on the economy and social institutions. The country has a fairly liberal trade regime. Its currency, the Djibouti franc, has been pegged to the Djibouti's economic performance has been weak since dollar since 1949 and is freely convertible. The economy independence. GDP barely kept pace with population is, however, fragile and highly dependent on external growth over 1978-83 and declined by over I percent a assistance to meet structural fiscal and external account year from 1984 to 1993. Per capita income has, thus, deficits. Since independence, savings have been nega- been halved since independence. The stagnant economy tive. Services account for 76 percent of the GDP at factor and the influx of refugees have led to acute unemploy- cost, and are dominated by activities relating to French ment. There was a short-lived spurt in military traffic military presence and Djibouti's role as a regional transit during the Persian Gulf War and increased transship- and business center. The traditional economy is based ment of relief aid to Ethiopia and Somalia more recently, on subsistence nomadic herding. Agriculture and indus- but they have had only minimal impact on GDP and try are little developed, owing to the harsh climate, high employment. production costs, and limited natural resources other The resource gap has averaged 26 percent of GDP than fishing and, potentially, geothermal energy. Mer- since 1977. After grants, the current account deficit chandise exports of local origin are insignificant. Dji- averaged about 11 percent of GDP, most of which, as in bouti depends heavily on imported energy, food, and the past, was covered by external borrowing. The overall other goods, with imports amounting to 98 percent of balance of payments was generally in equilibrium until GDP. Its economy is also handicapped by a relatively 1991; the onset of internal conflict led to a gap averaging large and inefficient public sector. Poorly performing almost 3 percent of GDP over 1991-93. Domestic sav- public enterprises and a bloated civil service increase the ings have been consistently negative, over 10 percent of 55 Djibouti GDP for 1992 and 1993. After exceeding 22 percent of The draft program also calls for improving economic GDP in the early years after independence, investment management by strengthening and reorganizing the has gradually declined and averaged only 15 percent of Ministry of Finance and the Treasury, and pursuing GDP over 1991-93. prudent monetary and credit policies to avoid inflation, In the late 1980s, despite periodic but short-lived and enhancing efficiency and competitiveness by liber- corrective measures, the budget deficit hovered around alizing trade, prices, the labor and capital markets, and 9.5 percent of GDP. The public finance situation has transport services. It calls for a comprehensive private- deteriorated markedly since 1991 because of the in- sector development and export, promotion strategy, and crease in military expenditure. Despite higher taxes privatizing and restructuring public enterprises to mini- (including a 10 percent special tax on wages to finance mize their cost to the budget. the war effort), increased tax collection, forced levies on The government also intends to continue ongoing public enterprises, and measures to contain expenditure initiatives. Human resources are being developed (including the adoption of a new pay scale and the through improved education and vocational training, reduction of civil servants' fringe benefits), the budget and the government is investing in urban sites and deficit on a commitment basis, excluding grants, was services to improve the living conditions for the urban estimated at 15.5 percent of GDP in 1992, and 12.2 poor. A comprehensive health plan has been prepared to percent of GDP in 1993. The cash deficit after grants has address major sector issues, including the provision of been financed largely by domestic payment arrears, family planning services, child immunization programs, forcing local enterprises to borrow from the banking and a communicable diseases control program. Wells system to finance their operations, and putting pressure have been drilled in several areas of the hinterland to on the currency. provide water to nomads and their herds. Pilot projects seek to arrest desertification. In spite of the peace accord Djibouti's short-term prospects are difficult. Production is estimated to have Since late 1994 the government has been preparing a contracted by about 3 percent in 1994. The fiscal situ- document outlining its proposed economic reform strat- ation will remain fragile, and the government may fur- egy. While the specifics of the economic reform pro- ther increase its domestic arrears in 1995, thus fueling gram remain to be finalized, the government's theviciouscircleofdelayedtaxpayments,lowerinvest- development objectives are to reduce dependence on ment, and a deteriorating net credit situation of domestic external budget support, diversify the economy and enterprises. Credit to government is expected to in- foster permanent employment opportunities, improve crease. The external balances are also expected to face social standards and alleviate poverty, and arrest desert- increased difficulties in 1995, forcing further import ification. The increase in military forces has led to an compression, a contraction of official reserves, and put- additional objective of demobilizing and reintegrating ting pressure on the currency. military personnel into the economy. Medium-term development prospects depend on the To achieve these objectives the government plans to sustainability of the political settlement of ethnic strife, undertake measures aimed at stabilizing the economy and the government's success in stabilizing the macro- and stimulating private-sector development. In addition, economic situation and implementing policies that it intends to redefine its role in facilitating development stimulate the private sector, improve access to basic and providing social services and infrastructure, while social services, and reduce demographic pressure. The disengaging from productive activities. immediate challenge facing Djibouti is to create a stable The government's proposed program aims to stabi- macroeconomic environment capable of preserving its lize the economy by reducing expenditure on emolu- credibility and attractiveness as a regional financial and ments and salaries, demobilization and civil service transshipment center. These measures, as well as steps reform, protecting the social sectors, and increasing to enhance the capacity and the efficiency of the port, revenues through tax measures and better management other transport facilities, and other business and finan- of public assets; in addition, public sector arrears and cial services, would allow Djibouti to expand its re- other internal debts are to be consolidated and repaid gional role as a service center and benefit from eventual over time. growth in the external trade of its neighbors. The proposed program calls for increasing invest- In the short term, a modest economic recovery is ment selectivity by focusing on infrastructure (port fa- feasible, but GDP growth is expected to remain below cilities, railroads, telecommunications, and roads), demographic growth in fiscal 1996. Growth will be human resource development and social services (edu- generated mainly by the recovery of transport and trade cation, health, and urban development), and preparing a activities. Given strong stabilization measures and ex- public investment program. ternal financing mobilized only on concessional terms 56 Djibouti and used productively, a viable fiscal situation, balance 1985 to $193 million (41 percent of GDP) at the end of of payments, and adequate external reserves could be 1993. Most of the external borrowing has been on restored in the medium term. highly concessional terms. Debt-service payments on medium- and long-term debt represented only about 2 External Debt percent of the exports of locally produced goods and services in 1993. At end- 1993, the government's short- External medium- and long-term debt outstanding and term debt stood at $33 million, equivalent to about 7 disbursed rose from $96 million (28 percent of GDP) in percent of GDP. 57 Djibouti Population mid-1993 (thousands) 557 Income group: Lower-middle GNP per capita 1993 (USS) 730 Indebtedness level: Le Indebted KEY RATIOS 19K6 1990 192 1 1994 hinvtmnt to GDP rtlob%) Gross domestic lnvestmentVGDP 23.4 21.0 15.7 12.8 .. 30 Exports ol goods and nfs/GDP 43.9 69.7 71.2 71.4 Gross domestic savings/GDP -3.9 -8.5 -10.7 -14.1 .. 20 Gross national savings/GDP -4.1 -4.9 -12.6 -14.3 Current account balance/GDP -27.5 -25.9 -28.2 -27.0 10 Interest payments/GOP 0.6 0.5 0.5 0.4 Total debt/GDP 41.9 49.4 41.6 48.5 *. Total debt/exports 87.3 66.5 56.8 63.0 .. GDP: PRODUCTION 196 m 1990 1912 1993 1994 Shs dof GDP by setor(%) (% of GDP) Agriculture 2.7 2.9 2.7 2.8 Industry 18.1 18.5 20.4 21.2 Manufacturing 4.0 4.8 4.4 4.5 Services 79.3 78.6 76.9 76.0 196-90 199044 1992 1993 1994 so (average annual growth) Agriculture -22 11 Industry 0.8 .. Manufacturing 2.2 ._ Services -2.0 . s 90 01 02 - 94 GOP -1.6 0.6 2.4 -2.3 .Agriculturs mindustry OServioes GDP: EXPENDITURE (% of GDP) 1968 191 1992 199J 1994 Growtretsof ODlIandGDP(%) Private consumptIon 65.4 76.7 71.9 76.4 . 20 General government oonsumption 38.5 31.8 38.8 37.7 Gross domestic investment 23.4 21.0 15.7 12.8 Exports of goods and nfs 43.9 e9.7 71.2 71.4 1' / Imports of goods and nis 71.2 99.2 97.6 98.3 6 / 19" 190 t994 im I 93 1994 1 o94 ,, (aveage annual grwth) el 92 Private oonsumption | 4/ General govemment onsumpton . .10 Gross domestic investment -4.5 .. Export of goods and nf 2.6 .1a Imports of goods and nf -0.1 .20 Gross national product -2.8 Gross national income -3.4 .. .. .. .G - DGo -',GDP PFNCES and GOVERNMENT FINANCE 1965 190 1992 1993 1994 Ch GofDPdsdorndCPI(%) Domeftkpr: 6 (% d'ta) nge) Consumer pris 2.1 .. .. .. .. 4 Wholesale prices 3 3 . \ Implicit GDP delator 3.7 4.0 4.5 3.0 . 2 Government fihne. I___ (% of GDP) 0 o I Cunwrntbudgetbalane 1.5 -4.5 -11.5 -8.8 a so DI 92 93 94 OVrsl surplus/defct -GDP dot. -CPI Note: 1994 ddta are prelmhory esmates. Figures In Itaic are for yerm othr than tos spefied. 58 Djibouti POVERTY and SOCIAL (annual gmotWh rates) 1986-90 1990494 Deuo pmnt dsmornd Population 5.6 2.5 Ufe expectancy Labor force most recent stirnate Poverty level: headoount index (% of population) GNP Gross Life expectancy at birth 48.7 per primary Infant mortality (per 1,000 live births) 113.2 capita enroliment Child malnutrition (% of children under 5) Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 974.9 Illiteracy (% of population age 15+) Acoe to safe water Gross primary enrollment (% of school-age population) 41.0 TRADE (millions US$) 1985 1990 1992 1993 1994 Expert end Import leels (mill. US$) Total exports (fob) .. .. .. .. .. 10 Other food .. .. n.a. .. .. Manufactures .. .. Total imports (cif) .. .. Food .. .. Fuel and energy .. .. Capital goods .. .. Export price index (1987=100) .. .. Import price index (1987=100) .. .. .. .. .. 0. Terms of trade (1987=100) .. .. .. .. .. . u 90 9i 92 93 94 Openness of economy (lade/GDP,%) 115 169 169 170 I OExports Gimports BALANCEofPAYMENTS 1985 1990 1992 1993 1994 cu.." acoontb&Ianc*toGoPrdo(%) (millions USS) Ora son oQD S % Exports of goods and nfs 151 291 329 332 .. 0 - Imports of goods and nfs 245 414 451 457 a so 91 DI 92 r 94 Resource balance -94 -123 -122 -125 -. Net factor income 12 18 -f 2 -o Net current transfers -12 -3 -3 -2 Current account balance -15 Before official transfers -95 -108 -130 -126 After official transfers -42 -57 -53 -53 . 20 Long-term capital inflow 32 61 38 45 .. -z- Total other items (net) 16 30 -2 0 Changes in net reserves -6 -35 17 8 .. Memno: Reserves exduding gold (mill. USS) 51 94 83 75 Reserves including gold (mill. US$) 51 94 83 75 Conversion rate (locaLUUS$) 177.7 177.7 177.7 177.7 EXTERNAL DEBT Export ratios 1985 1990 192 1993 1994 Strucr o xtii debt () Long-term debVexports 58.2 50.4 51.3 53.9 1. 4 IMF creditVexports 0.0 0.0 0.0 0.0 Short-term debtexports 29.1 16.2 4.5 9.2 Total debt service/exports 4.3 4.6 3.2 2.7 .. OPNG GDP ratios a Prv. Long-term debVGDP 27.9 37.4 38.3 41.4 .. so Off. IMF credit/GDP 0.0 0.0 0.0 0.0 Short-term debVGDP 14.0 12.0 3.4 7.1 25 Long-term debt ratios Private nonguaranteedAong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0, Private creditors/ong-tenm 8.8 0.1 0.1 0.1 0.0 s a s 0 91 92 90 94 Official creditors/long-term 93.2 99.9 99.9 99.9 100.0 The development diamond shows four key indicators of development In the country (In bold) compared with its income-group average. if data are missing, the diamond will be incomplete. 59 Equatorial Guinea quatorial Guinea's land area is 28,000 square This included measures to strengthen budgetary man- kilometers and its population about 400,000. It agement and domestic resource mobilization, rational- comprises Rio Muni on mainland Africa, with ize the public investment program, and restructure about 80 percent of the population, and the island public enterprises and the banking system. The program of Bioko - with the national capital, Malabo - and soon went off track because of excessive extrabudgetary other small islands in the Gulf of Guinea. Communica- expenditure. tions and administration are difficult. The 1993 GDP per During 1990 and 1991, the government took steps to capita is estimated at $420. bring the program back on track: public utilities man- The period from independence in 1968 to 1979 was agement and performance were improved, and progress one of disastrous mismanagement and brutal repression was made in eliminating price controls. In 1993 the in Equatorial Guinea. It is not known how many people medium-term structural adjustment program was ex- perished but it is clear that thousands were killed and tended through 1995 with support from an IMF struc- many thousands more fled. The health and education tural adjustment facility. It called for strengthening the services closed down and physical infrastructure dete- budgetary position, continuing tight monetary and credit riorated badly. By the time the government was over- policies, accelerating financial sector reform, and re- thrown, almost all economic activity other than moving economic constraints and distortions. subsistence cropping had come to a halt. The present regime has made progress on human rights issues, but poor governance remains a serious obstacle to economic and social development. Overall growth has been disappointing. The annual av- In 1985 Equatorial Guinea joined the Franc Zone, erage rate of growth of nonoil real GDP was only 1.5 adopted the CFA franc as its currency, and took significant percent between 1985 and 1993, well below population stabilization measures as the price of membership. It be- growth of 2.4 percent. The overall fiscal deficit (on a camne a member of the Bank of Central African States and commitment basis and excluding foreign-financed in- joined the Central African States Customs Union. The vestment) increased from 3.2 percent of GDP in 1992 to results were short-lived. Deteriorating terms of trade for its 8.2 percent in 1993, although it has since been somewhat exports widened fiscal and external imbalances and two reduced. Government expenditure and net lending in- commercial banks failed, causing a liquidity crisis. creased from 24 percent of GDP in 1992 to 29 percent Agriculture, including fishing and forestry, accounts in 1993, exceeding the program target by 10 percentage for over 50 percent of GDP and 60 percent of exports. points. The resulting balance of payments deficit was Subsistence agriculture predominates, but cocoa pro- financed through an accumulation of external arrears. duction on Bioko and timber extraction in Rio Muni After the January 1994 CFA franc devaluation the provide monetary income, foreign exchange, and gov- IMF approved a second structural adjustment arrange- ernment revenues. Construction, industry, and manufac- ment for Equatorial Guinea. Performance for the first turing account for about 30 percent of GDP, services for half of 1994 was mixed: quantitative benchmarks on the 20 percent. The offshore Alba oil field came on line in overall fiscal balance and nonaccumulation of external January 1992 and exports began in April 1992. Further payments arrears were not observed, and budgetary oil exploration is going on and there may be other problems were expected to persist into the third quarter. offshore reserves. Customs receipts were off target, in part because of continued granting of ad hoc exemptions. However, The 1988 Reform Program progress was made in implementing the customs union's tariff and tax reform, establishing a new price structure In 1988 the government adopted its first medium-term for petroleum products, and other structural reforms structural adjustment program, supported by the IMF. required under the program. Substantial internal and 60 Equatorial Guinea external arrears had accumulated by September, and further significant offshore deposits of oil in an area total outstanding medium- and long-term debt was over disputed by Nigeria. 150 percent of GDP; of this about $215 million (or 139 Equatorial Guinea's main constraints to growth are a percent of GDP) was external debt, owed mostly to the lack of human capital (illiteracy is 50 percent for men Paris Club. The overall 1994 balance of payments deficit and 60 percent for women) eroded by neglect and abuse, on a commitment basis is estimated at 1.8 percent of and poor governance, which has been a problem since GDP, and the current account deficit (excluding official independence, and which creates an environment unfa- transfers) over 10 percent. vorable to private sector development. There is still Despite its poor economic performance, Equatorial pervasive political interference in productive and com- Guinea has considerable potential. The country is well mercial activities. The courts do not function. The power endowed with arable land. Bioko, about 7 percent of its of the executive, in practice the president, is unchecked, land area, has fertile volcanic soils and a climate that and a small circle of powerful individuals have full suits it for most tropical crops. Enough fruit and vege- discretion in managing the country. The population, tables are already produced to meet domestic consump- knowing it has no recourse, is cautious and acquiescent. tion, and there is potential for exports of tropical fruits Farmers and other economic operators have no incentive and horticultural crops. There is also potential for eco- to diversify or expand beyond subsistence needs. tourism. Bioko and Annobon have many rare species Foreign investment could play a key role in develop- and rare forms of certain species. These resources are, ment. Its 1994-96 plan calls for private-sector incen- however, under severe pressure; several unique subspe- tives, including changes in the Investment Law of 1992, cies of primates are threatened and others have already and for new land tenure legislation to clarify private disappeared. property rights, but these measures were never imple- Oil was discovered in 1984 and production started mented and major impediments to private sector devel- in January 1992. Proven reserves are estimated at 535 opment remain. Since land tenure rights remain poorly billion cubic feet of gas and 28 million barrels of defined and private contracts are unenforceable, the condensate. Current production is about 6,500 barrels financial sector remains undeveloped. The single com- of oil a day, and about 80 million cubic feet of gas is mercial bank now operating in Equatorial Guinea has flared but could be tapped for power generation. Pro- little incentive to lend; those with access to credit tend duction from the Alba field is expected to peak at about to relend it to small farmers at high interest that reflects 8,000 barrels a day in 1995, at which time oil revenue the default risk. Wide-scale introduction of modern will begin to accrue to the government. Cumulative techniques through credit financing is thus effectively government receipts from 1995 to 2000 are expected to precluded. Attempts to establish agricultural credit be between $60 and $90 million. There is evidence of agencies in 1985 and 1994 failed. 61 Equatorial Guinea Population mid-1993 (thousands) 379 Income group: Low GNP per capita 1993 (US$) 420 Indebtedness level: Severely Indebted KEY RATIOS 19865 1990 1m 1993 1994 InvestmwnttoGDPr mo(%) Gross domestic investment/GDP 6.2 26.6 24.2 25.1 24.0 so Exports of goods and nfs/GDP 30.2 32.1 36.6 39.8 55.1 40 Gross domestic savings/GDP -3.2 -10.9 2.8 7.5 17.1 Gross national savings/GDP -7.5 -9.6 -6.0 0.3 6.4 30 Current accoDunt balanceiGDP -13.9 -38.0 -34.2 -28.8 -11.9 Interest payments/GDP 0.6 0. 0.6 0 0.6 80 Total debt/GDP 166.2 182.4 160.8 171.2 139.2 0 Total debt/exports 551.3 530.8 435.7 435.5 375.4 a 90 91 92 93 94 GDP: PRODUCTION (% of GDP) 1985 19 1992 1993 1994 Shwis do GDP by sctor(%) Agriculture 68.9 61.5 49.6 47.2 50A4 100 Industry 8.7 10.6 21.9 25.8 32.7 Manufacturing 8.7 10.6 11.4 11.3 14.1 Services 22.5 27.8 28.5 27.0 16.9 1985-90 1990-94 1 99 1993 1994 s (average annual growth) Agriculture 0.8 -1.5 -3.9 0.1 5.3 Industry 9.9 10.2 -0.2 11.3 21.1 Manufacturing 9.9 10.2 -0.2 11.3 21.1 Services 6.1 10.9 12.5 7.2 18.1 0 8 s9 90 91 92 93 94 GDP 2.4 7.4 13.7 7.3 8.8 Agriculture Uindustry OServices GDP: EXPENDITURE (% of GDP) 1986 1990 1992 1913 1994 Growthr of GDI nd GODP (%) Private consumption 75.5 71.3 62.0 51.1 72.6 14 General govemment consumption 27.7 39.6 35.2 41.4 10.3 12 Gross domestic investment 6.2 26.6 24.2 25.1 24.0 Exports of goods and nfs 30.2 32.1 36.6 39.8 55.1 o/ Imports of goods and nfs 39.6 69.5 58.0 57.4 62.0 1985-90 1990-94 1m 1993 1994 / (average annual growth) Private consumption 4 . / General govemnment consumption 2 . / Gross domestic investment . .. Exports of goods and nfs o . . . . 0 Imports of goods and nfs go V. 90 . 2 93 94 Gross national product 2.5 6.9 12.7 7.8 5.0 -2 Gross national income -GDl -*-GOP PRICES end GOVERNMENT FINANCE 19B6 10 19m 93 1994 Chnge of GDP deftor and CPI (%) Domestic prisce. « (% change) 40 ConL jmer prices 1.1 -7.2 30 Wholesale prices / Implidt GDP deflator -2.8 0.3 -t7 45.0 20 Governmnt finance (% of GDP) 93 Current budget balance 3.5 0.8 -1.2 -3.3 -1.9 Overall surplus/deficit -2.5 -2.6 -3.2 -8.2 -3.6 GDP rb. -CPI Note: 1994 data are preliminary estniates. Figures In Italics are for years other than those specified. 62 Equatorial Guinea POVERTY and SOCIAL (annual growth rates) 1985-0 1990-94 Development diamond Population 2.4 2.5 Life expectancy Labor force 1.4 1.8 most recent estimate Poverty level: headcount Index (% of population) .. GNP Gross Ufe expectancy at birth 48.4 per pnmary Infant mortality (per 1,000 live births) 115.0 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 81.8 Illiteracy (% of population age 15+) 49.8 Access to safe water Gross primary enrollment (% of school-age population) .. TRADE (millions US$) 1985 1W0 1992 199 1994 Export and Import levels (mill. US5) Total exports (fob) 24 38 52 56 61 70 Cocoa 15 6 5 3 4 I Timber 6 1 0 0 0 Manufactures Total imports (cif) 1 m 199 49 40 Food 43 Fuelxand energy 4 73 7 5 4 Capital goods 12 14 16 89 Export prioceindex (1987=100) 71 94 173 186 172 1 Import preor index (1987=100)-4 - 11 12 1 0 Terms of trade(1987=100) 93 82 11l 116 a3 90 3 92 93 94 Openness of economy (trade/GOP,%) 70 102 96 97 117 OExports Mirnports BALANCE of PAYMENTS (millions US$) l 1n90r2 1993 1994 Current aCOUnt balance to GOP rdto (%) Exports of goods and nfs 24 43 59 62 66 0 Imports of goods and nfs 32 92 98 89 74 U1 as se 0 91 92 9 Resource balance -8 -49 -40 -27 -8 Net atoor income -4 -8 -11 -12 -11 -2 Net current transfers 1 8 -4 -3 -2 3 Current accoDunt balance Before official transfers -11 -48 -54 -42 -21 o-4 After official trafers -4 -12 1 -7 3 4.5 Long-term capital inflow 8 12 0 -5 -23 Total other items (net) -9 1 -9 9 21 Changes In net reserves 4 -1 7 2 -1 70 Uemo: Reserves exduding goid (mill USS) 3 1 13 0 Reserves Including gold (mil. USS) 3 1 13 0 Conversion rate (locaiWUS$) 449.3 272.3 264.7 283.2 385.3 EXTERNAL DEBT Exrpoff ratios 1986 1990 1992 1993 1994 Structurm of extl debt (%) Long-term debt/exports 470.4 460.8 365.9 355.4 351.2 1501 _ ___ -- IMF credit/exports 53.3 12.8 21.5 26.6 24.2 Short-term debtexports 27.5 57.3 48.3 53.5 0.0 Total debt service/exports 42.5 11.2 5.3 1.9 7.6 7ro PNG GOP ratios * Prvt. Long-term debt/GDP 141.9 158.3 135.1 139.7 130.2 *Of. IMF creditVGDP 16.1 4.4 7.9 10.5 9.0 Short-term debt/GDP 8.3 19.7 17.8 21.0 0.0 25 - Long-trm debt rtios Private nonguaranteedliong-terfn 0.0 0.0 0.0 0.0 0.0 Public and pubildy guaranteed o Private creditorsAong-term 14.3 8.5 7.5 6.9 6.5 Is 09 90 91 2 93 94 Official creditors/tong-term 85.6 91.5 92.5 93.1 93.5 The development diamond shows four key indicators of development in the country (in bold) compared wt its income-group average, If data are missing, the diamond will be incompWete 63 Eritrea ritrea's struggle for independence, one of the Assembly established a constitutional commission, E longest in Africa's history, lasted for three dec- which is responsible for seeking the views of the ades. It began in earnest in 1962 following the Eritrean population, at home and abroad, on the future annexation of Eritrea by Ethiopia, and intensi- structure of the government. The commission will pre- fied after the military coup in Ethiopia in 1974. The pare a draft constitution in two years for ratification. Eritrean Peoples' Liberation Front liberated Eritrea in This will be followed by multiparty national elections. May 1991. This coincided with the Ethiopian People's Revolutionary Democratic Front's victory over the mili- Recent Economic Developments tary regime in Ethiopia. Following an internationally supervised referendum, Eritrea formally gained its inde- In the 1930s Eritrea was a successful exporting nation. pendence in May 1993. Ethiopia was among the first During World War II, when imports from Europe to the nations to recognize Eritrea's independence. East African markets were disrupted, Eritrean industries Eritrea is strategically located in the northeastern part stepped in to supply these markets. However, the econ- of Africa with two major ports - Massawa and Asseb omy began deteriorating in the 1950s owing to lack of - on the Red Sea. For centuries, Massawa has been a investment. This was compounded further in 1974, center of trade between Africa and the Middle East. when the military regime in Ethiopia adopted a com- Because of its location and its openness to trade, Eritrea mand economy and nationalized most private assets, has a wealth of experience in entrepreneurship and com- including those in Eritrea. The adverse impact of cen- merce. In this sense, human resources are probably trally planned policies was further worsened in the last Eritrea's greatest asset. Eritrea is a land of varied topog- two decades by the intensification of war, recurrent raphy, climate and rainfall, and it lies in the Sahelian droughts and famines, and lack of access to foreign rainfall zone. Its natural resources are considered to be exchange to import essential inputs. meager. There is potential to extract petroleum from the At the time of its liberation in 1991, Eritrea inherited Red Sea, and the economic viability of these reserves is an economy that was neglected, isolated, and severely being examined. The country's coastal waters are be- damaged by war. Enterprises were nonoperational or lieved to be potentially among the most productive working at extremely low capacity, food production had fishing grounds in the Red Sea. Eritrea's population is declined, and infrastructure including roads, ports, and estimated to be in the range of 3 to 3.5 million, including power supply - well developed by African standards in nearly half a million refugees in Sudan. the 1940s - had been badly damaged. In addition, Eritrea's long struggle for independence has left a Eritrea inherited institutions and policies that were deep impact in terms of building a strong sense of nation either not appropriate for running a peacetime liberal and community structure, a strong sense of ownership economy or inadequate. Economic and social data on of national development programs and eagerness to Eritrea are weak and scanty; preliminary data show that build its capacity to manage policies, and a pragmatic real GDP contracted by nearly I percent a year over and flexible approach toward economic development fiscal years 1985-90; it shrank further by some 7 percent based on building solutions that take advantage of its in fiscal 1991, the final year of the conflict. well-educated and successful diaspora and openness to Since winning its freedom, Eritrea has demonstrated ideas from outside. a strong dedication to the goals of nation building, The long struggle for independence has also helped economic reconstruction and recovery, and support for to create attachment to democratic and participatory introducing a pragmatic and liberal market economy. In processes. After the war ended in 1991, elections were a relatively short period it has made significant progress held at village, district, and provincial levels throughout in restructuring institutions, establishing key elements the country. A national referendum on independence of a functioning government, and eliminating a number took place in April 1993. In March 1994 the National of restrictive policies. In May 1991 the government, 64 Eritrea with its own meager resources, launched a Recovery and raise tax revenue collected from around 15 percent of Rehabilitation Program aimed at jump-starting the GDPin 1992toanestimated23percentofGDPin 1994. economy. The program includes an Economic and Fi- A start has also been made toward restructuring public nancial Management Program aimed at supporting the expenditure. Recurrent expenditures on social services government's program on capacity building. - including education, health, labor, and social welfare, The government's Recovery and Rehabilitation Pro- and relief and rehabilitation - are estimated to have gram and the return to peace have helped to improve increased from 3 percent of GDP in 1992 to more than Eritrea's economic performance. After contracting by 4 percent of GDP in 1994. Public investment is esti- 1.5 percent in 1993, largely because of a drought that mated to have increased from 5 percent of GDP in 1992 reduced agricultural output, the economy rebounded to over 19 percent in 1994. strongly in 1994 and is estimated to have grown by 9.4 Since Eritrea uses the Ethiopian birr as its legal percent in real terms. Industrial production and service tender, it does not have an independent monetary policy. activities have continued to expand primarily because Although Eritrea inherited an obsolete monetary and of an increase in exports, a growing private small-scale financial system, it has made progress in reviving this sector, the partial rehabilitation of a few large-scale sector. Confidence in Eritrea's domestic banking sector industrial enterprises, a strong rebound in construction is reflected by the high level of liquidity of the Commer- activity, and a good harvest. Initial progress has also cial Bank of Eritrea. A new Central Bank Act and finan- been made in rehabilitating parts of the infrastructure, cial sector legislation are at an advanced stage of although the requirements for ports, roads, and power preparation. The government has clarified that private generation continue to be substantial. banks, both domestic and foreign, are permitted to op- The Eritrean authorities recently defined their vision erate in Eritrea. Given Eritrea's location, the long-run of macroeconomic policy reforms and sectoral strate- objective of the government is to make Asmara into a gies to facilitate economic recovery. The reforms in- regional financial and services center. clude measures aimed at facilitating the transition to a The government has pursued a pragmatic exchange market-based economy. To translate their vision into rate policy. Since August 1993 official buying and sell- reality, the government recognizes the need for in- ing exchange rates have been based on the marginal creased analytical work and improvements in institution auction rate established in the biweekly foreign ex- building and implementing capacity. change auctions in Addis Ababa in Ethiopia. Eritrea Eritrea has followed prudent financial policies. A does not have access to these auctions. Eritrea buys sharp rise in government revenue, reflecting improve- foreign exchange remitted by its nonresident citizens at ments in customs and tax administration and the resur- Br 7.05 to the dollar, compared to a rate of Br 7.2-7.4 in gence in economic activity, helped contain the fiscal the parallel market, which, while illegal, is not actively deficit (after grants) at 3 percent of GDP in 1992. De- repressed by the authorities. Apart from their tolerant spite a further large increase in revenue in 1993, the attitude toward the parallel market, the Eritrean authori- overall fiscal deficit (after grants) rose to about 6 percent ties are also liberal with respect to the import and export of GDP. Even though there were significant efforts to of domestic currency notes, foreign currency declara- limit expenditure overruns, the large deficit reflected an tion requirements for travelers, and foreign investment increase in expenditure, which was related to the demo- approvals. bilization of 25,000 ex-combatants, higher rehabilita- Eritrea's trade balance with Ethiopia and the rest of tion and maintenance costs, and a significant rise in the world was in deficit through the first half of 1994. capital outlays. The overall fiscal deficit (after grants) is While exports increased sharply from an extremely nar- estimated to have risen to about 13 percent of GDP in row base, import demand related mainly to relief and 1994, as a result of a deceleration in revenue growth and reconstruction was high. However, the external current a further sharp increase in government expenditure. The account deficit was contained, because of inflows of fiscal deficit has been financed largely by a drawdown private remittances. of government deposits with the banking system, and to Institutional strengthening and streamlining have ad- a lesser extent by the disbursement of external loans. vanced rapidly. At independence, Eritrea inherited insti- The annual inflation rate has been kept low at around 7 tutions geared for managing a command economy. In to 9 percent. This has been, in part, achieved because of addition, the country had little experience in administer- the rapid supply response of the economy to the govern- ing or governing a nation, since as a province of Ethiopia ment's recovery and reform program. it had little autonomy or policymaking authority. These As part of reforming and strengthening of the fiscal problems were further compounded by the fact that system, the government has eliminated a number of many educated and skilled Eritreans had left the country restrictive tax features. Tax rates have been lowered, and under the previous regimes. The government has taken this, accompanied by increased compliance, helped to a large number of measures to rationalize institutions, 65 Eritrea including merging the Departments of Economic Devel- the population. In 1993, individual daily caloric intake opment and Cooperation and Finance into a Ministry of was estimated at 1,750 kilocalories, equivalent to about Finance and Development. Streamlining of the civil 93 percent of minimum requirements; the average for service - comprising some 15,000 employees - has Sub-Saharan Africa is 2,100 kilocalories. Major causes begun, and the shortage of skilled staff in key positions of ill health include preventable diseases such as ma- is aizo being addressed. laria, diarrhea, and acute respiratory infections. Access Eritrea has begun to introduce sectoral policy re- to safe drinking water and sanitation is low in most forms. Trade policies are being revised, and a new and provinces of Eritrea. In rural areas, approximately half simplified import licensing procedure is being intro- of the population obtains water from shallow wells. Poor duced. Export taxes have been abolished. In opening up health and nutrition levels are accompanied by high its economy, the government has emphasized that pro- fertility rates (about 6.8) and an annual population tectionism does not work and that success thrives on risk growth rate between 2.7 and 3.0 percent. taking. A new Investment Law has been prepared and The current average adult illiteracy rate is estimated will open all sectors to private investment; it allows 100 to be 80 percent, with a slightly higher figure for women. percent foreign ownership - the old code required 51 There is a large backlog of people, at all ages, with little percent local ownership in certain sectors - and guar- or no exposure to formal or informal schooling. A large antees investments against nationalization, confisca- number of schools were damaged during the war. The tion, or other noncommercial risks. Many special tax limited number of schools that survived the war now run holidays would be eliminated or simplified and made several shifts to accommodate the increasing demand for more transparent, and approval time from the receipt of educational services. Significant disparities in social applications has been reduced to a maximum of 10 days indicators exist across regions. In addition to inheriting from 90 days under the old code. The former labor code, a depreciated human capital base, the government also which prohibited hiring of labor by the private sector, is faces the challenging task of reintegrating nearly half a now being revised and private hiring of labor is permit- million refugees, demobilizing some 60,000 soldiers, ted. Centralized marketing and planning systems have and addressing the needs of nearly 100,000 internally been disbanded, so that most public and private enter- displaced persons. prises do not face price and marketing restrictions. Sub- Eritrea, supported by an increasing group of aid agen- stantial progress has also been made in addressing the cies and NGOs, has begun rehabilitating its social infra- land issue. Land tenure in Eritrea has been complex in structure and providing basic social services. The the past, with different types of tenure in highland and government has established a Community Rehabilita- lowland areas. The government has announced that tion Fund - supported by IDA and other donors - to every farmer will now have a lifetime user right, women deliver basic social services at the local level to the most will have equal access to land, and farmers can officially needy. The government has developed a policy frame- rent or mortgage their land and enter into sharecropping work for demobilizing soldiers. arrangements. Land will be under government owner- The government's initiatives in the social sectors ship. The government recognizes that user rights to have been largely built on its success with social pro- inherit will be critical for sustaining the incentive to grams during the liberation struggle, when the Eritrean invest in land, and mechanisms are being identified to Peoples' Liberation Front practiced progressive poli- facilitate inheritance of improvements in land produc- cies. About a third of the front's fighting forces were tivity. female. Attention was paid to reducing the traditional forms of discrimination against women, emphasis was Poverty and Social Indicators placed on primary education and health care, and reli- ance was placed on community support systems to pro- Decades of lost growth, war damage, and restrictive tect vulnerable groups from the effects of poverty, war, policies have contributed to a serious deterioration in and natural disasters. The Planned Parenthood Associa- social and human capital and the quality of life in tion of Eritrea is supporting family planning activities Eritrea. Although actual GNP per capita figures are not by organizing training programs and running a famnily available, it is estimated to be at the lower end of the planning clinic. The National Union of Eritrean Women low-income category. Eritrea's low per capita income is is managing several programs targeting women in gen- reflected in its poor human capital and social indicators. eral and disadvantaged women in particular. Among Life expectancy at birth is estimated to be low at about these, there are literacy programs in Barka and Gash, and 46 years compared to 50 years for Sub-Saharan Africa, special programs for demobilized women fighters, in- and the under-five child mortality rate is high at 203 per cluding vocational training, income-generating activi- 1,000 live births, compared to 196 for Sub-Saharan ties, and microcredit schemes. In addition to further Africa. Immunization is accessible to only 27 percent of strengthening social programs, the government hopes to 66 Eritrea reduce poverty on a larger scale through its recovery and improve their capacity and performance through a corn- reform efforts aimed at increasing investment and accel- bination of rehabilitation, provision of equipment, and erating broad-based growth to expand employment op- institutional reforms and improvements in management portunities. efficiency through increased autonomy and account- ability. Agriculture is critical to the livelihood of the 70 to Challenges Ahead ~~~~~~~80 percent of the population that depends on the prod uc- Although considerable achievements have been made tion of crops, livestock, and fisheries for income and since independence, the government continues to face employment. Given the present low agricultural produc- massive challenges, particularly in rehabilitation, re- tivity, there is good potential for expanding agricultural building institutions, and reintegrating returnees and production in the short run through a combination of demobilized ex-combatants into the civilian econ- intensified agriculture and extending the amount of land omy. under cultivation. The government has completed a re- A principal challenge is to revive productive invest- view of the agricultural sector and related environ- ment and employment. The domestic production base is mental issues and drawn up an action plan for weak and the country is heavily dependent on food developing the sector that advocates strengthening the assistance. The costs of reconstruction and the need for institutional and technical base for agricultural develop- social safety net expenditures are likely to impose a ment, improving the information base on the availability serious burden on the fiscal accounts. In light of these of water and other natural resources, and continuing and other ongoing significant fiscal pressures, one of the pre-investment studies, while forging ahead with di- immediate concerns is the need to contain expenditure rectly productive investments. In the livestock and ani- within the available resources. Eritrea's monetary and mal sector, increased returns could be obtained from exchange policies are designed in the context of its improving animal health, introducing intensive produc- reliance on the Ethiopian birr as its currency. The gov- tion systems for milk and poultry production, and devel- ernment has declared its intention to introduce a national oping new markets for sheep, goats, camels, and cattle cuffency only after its institutional capacity to conduct in the Middle East. a national monetary policy is in place. The government has announced a program for Environment and Natural Resources strengthening basic education by improving efficiency of delivery systems and raising educational outcomes. The main environmental issues in Eritrea relate to the Other objectives include reducing regional and urban- degradation of its land, forestry, and water resources. rural imbalances in primary education, increasing fe- In rural areas, loss of vegetative cover, (particularly in male participation in primary education, and increasing the highlands), an exceptionally high rate of deforesta- the influence of communities over the educational proc- tion - the percentage of land covered by forests in ess. Emphasis will be placed on long-term educational Eritrea is thought to have dropped from about 30 per- financing by encouraging communities to continue to cent in the 1920s to 2 percent today - soil erosion, and contribute to educational costs. loss of soil fertility have led to declining agricultural Eritrea's once well-developed infrastructure is se- productivity, the drying up of springs, abandonment of verely damaged, and constitutes a major constraint on farm lands, and serious shortages of fuelwood and recovery and the sustainability of subsequent growth. animal fodder. Eritrea also possesses extraordinary ma- The government has set alleviating infrastructure bottle- rinle resources that need to be managed in a way that necks as a priority. Roads are in a dilapidated state and complements the sustainable development objectives the road network requires extensive rehabilitation. of the government. Eritrea suffers from chronic electricity shortages, and it The govemTment has drawn up a national environ- is estimated that 30 to 50 percent of output in commer- ment management plan for Eritrea that has been en- cial and industrial sectors is potentially lost owing to dorsed by a ministerial council on the environment. The electricity shortages. Eritrea's two ports, Massawa and plan was an outcome of extensive discussions with a Asseb, along with the road infrastructure, were damaged wide group of people at the national, regional, and local by the war and have suffered from a lack of mainte- levels. Tlwenty-one regional workshops provided a fo- nance. The port of Massawa, which serves as the major rum for consulting people at the community level on port for import-export of Eritrean cargo, as well as for their most pressing environmental issues, identifying an increasing volume of traffic for Ethiopia and Sudan, locally derived means of addressing these issues, and has suffered substantial damage. Asseb's port is oper- actively engaging communities in formulating local and ating at its capacity. A port master plan is under prepa- regional action programs. T'he plan proposes to continue ration. The government's strategy for ports is to this process of dialogue at the local level in regular 67 Eritrea consultations through the "EriFtre People's Forum on expand considerably, but imports are also expected to the Environment." increase sharply in line with investment and reconstruc- tion requirements. In view of the projected large trade Medium-Term Prospecfe deficit and uncertainties relating to private remittances, the overall balance of payments position is likely to Eritrea's external position will continue to be extremely remain precarious. Consequently, Eritrea's immense re- weak over the medium term. A large trading account lief and reconstruction imports will need to be financed deficit is expected to persist; export earnings should largely on concessional terms. 68 Eritrea Population mid-1993 (millions) Income group: Low GNP per capita 1993 (US$) Indebtedness level: Not classified KEY RATIOS 1985 1990 1992 1993 1994 |nvestment to GDP ratio() Gross domestic investment/GDP .10 T Exports of goods and nfs/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP -8.7 5.8 Interest payments/GDP Total debt/GDP o l l l l l l Total debt/exports 8. 9 90 91 92 93 94 GDP: PRODUCTION (,Y. of GDP) 1985 1990 1992 1993 1994 Share of GDP by sctor(%) Agriculture 28.5 13.1 1 9.0 100 Industry 19.3 20.7 18.0 Manufacturing 8.7 9.5 8.4 Services 52.2 66.2 63.0 1985-90 1990-94 1992 1993 1994 s 1 (average annual growth) Agriculture.. . Industry . l i Manufacturng o Services .. . as so go 91 92 93 94 GDP *Agriculture *Industry OlServioss GOP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growthrotof GDlandGDP(%) Private consumption General govemment consumption Gross domestic investment Exports of goods and nfs Imports of goods and nfs 1985-90 1990-94 1992 1993 1994 (average annual growth) Private consumption General govemment consumption Gross domestic investment Exports of goods and nfs Imports of goods and nfs o - Gross national product s 90 91 9 923 94 Gross national income -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP dflatorad CPI (%) Domestic prices 1 (% change) Consumer prices Wholesale prices Implicit GDP deflator Government finance (% of GDP) o Current budget balance -4.1 -6.0 s so 91 9e2 9 94 Overall surplus/deficit -8.7 -24.0 -GDP def. -CPI Note: Estimates for Eritrea are subject to more than the usual range of uncertainty and should be regarded as very preliminary. 69 Eritrea POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Devlopment d4mond Population Uife expectancy Labor force . most recent estimate Poverty level: headcount index (% of population) GNP Gross Life expectancy at birth per primary Infant mortality (per 1,000 live births) capita enrollment Child malnutrition (% of children under 5) Access to sale water (% of population) Energy consumption per capita (kg oil equivalent) Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Access to safe water TRADE (millions US$) 98S 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (lob) .. . .. .. 10 n.a. .. na. .. .. Manufactures .. Total imports (dl) .. Food .. .. Fuel and energy .. .. Capital goods .. Export price index (1987=100) .. .. Import price index (1987=100) .. .. .. .. .. 0o Terms of trade (196.7= 100) .. .. .. .. 92 9 94 Openness of economy (trads/GDP, %) *- .. .. .. . Exports h Imports BALANCEofPAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GOP ratlo (%) Exports of goods and nfs 88 139 . Imports of goods and nIs 331 313 .. Resource balance .. .. -243 -174 Net factor income .. .. 0 0 2 Net current transfers .. .. 181 203 262 0 a s 690g 91 r2 93 94 Current acoount balance -2 Before otficial transfers .. .. -62 28 -12 Atter ofNial transfers .. .. 105 98 91 Long-term capital inflow .. .. 0 0 21 4 Total other items (net) 92 37 0 4 Changes in net reserves -197 -135 -112 no Mfemo: Reserves exduding gold (milL USS) .. .. Reserves including gold (mill. US$) .. .. Conversion rate (.bocal4S$) .. .. 2.8 5.2 EXTERNAL DEBT Export ratlos 1995 1990 1992 1993 1994 Stucm t Idebt Long-term debtVexports . .100 IMF crediVexports Short-term debt/exports Total debt servicelexports .. .. .. .. .. oPNG GDP ratloa Prtt. Long-term debVGDP .. .. .. .. .. so o. IMF credit/GDP .. .. Short-term debVGDP .. .. 25 Long-twm debt raato. Privale nonguaranteedlbtngemm .. .. .. Public and publicly guaranteed 0 Private creditors8long-term m so S1 Se aS Official credilorallong-term The development diamond shows four key Indicators of development in the country (in bold) compared with its income-group average. It data are misaing the diamond will be incomplete. 70 Ethiopia In May 1991, after a long and devastating civil war, Macroeconomic management was mixed in fiscal the military regime was ousted by a coalition led by 1994. The overall fiscal deficit (including grants) in- the Ethiopian People's Revolutionary Democratic creased from 7.1 percent of GDP in fiscal 1993 to Front, and the transitional government of Ethiopia 10.2 percent of GDP in fiscal 1994 because of a sharp started the process of restoring peace and stability for increase in expenditures, from 23.2 to 30.8 percent of the first time in nearly two decades. A referendum in GDP. Revenues (excluding grants) also rose, from 11.9 Eritrea voted overwhelmingly for independence, de- to 13.7 percent of GDP. While part of the increased clared in May 1993. deficit was financed externally, domestic bank financing A Constituent Assembly, elected through popular vote reached 2.6 percent of GDP, compared to a target of less in the spring of 1994, approved the Constitution of the than I percent. Federal Democratic Republic of Ethiopia in December The structure of expenditures and taxation has im- 1994. The new constitution has three important features. proved substantially in recent years. Public expenditures First, it provides a franework for establishing a decentral- have been sharply reoriented from military spending to ized democratic federal system with a bicameral legisla- the social sectors and infrastructure. In addition, budg- ture. Both houses jointly elect the president, who is the etary allocations for operations and maintenance have head of state, while the lower house elects the prime been increased. The government introduced income and minister, who is the head of government. Second, it pro- sales tax reforms, improved the management of counter- vides for the right of self-determination and even secession part funds, and completed its first public expenditure by any region. Third, it guarantees equal political, eco- review. nomic, and social rights for all, with specific reference to The foreign exchange auction system, established in women. National elections are scheduled in May 1995. May 1993, has functioned effectively and grown signifi- cantly in volume. Following the 140 percent devaluation Recent Economic and Social Developments of the birr in October 1992, the gap between the auction has been and parallel rates has been narrowed to less The military dictatorship that ruled Ethiopia for nearly than 10 percent and the negative import list for the two decades dismantled most of the private sector and auction gradually reduced. The exchange rate, based on imposed a centrally planned economy. These policies, the auction rate, depreciated by over 30 percent in real exacerbated by the siphoning of resources for the war terms during fiscal 1994. The trade deficit narrowed effort, left the Ethiopian economy in a shambles. The somewhat, but the current account deficit remained main economic objectives of the transitional govern- fairly constant at 3.4 percent of GDP including official ment when it came to power in 1991 were to stabilize transfers (10.2 percent excluding official transfers). and jump-start the economy. Good progress has been Gross official reserves had risen to about seven months made in stabilization, particularly in lowering the rate of imports by December 1994. of inflation through prudent monetary policy. The econ- Macroeconomic management is made more difficult omy has responded favorably to the change in policy by the surge in international coffee prices. It is now direction, and to the injection of resources provided by projected that coffee revenues will more than double this donors. GDP bounced back after a sharp drop in the last fiscal year. If measures are not taken to prevent these two years of the civil war, growing by 12.3 percent in foreign exchange inflows from being translated into fiscal 1993. In fiscal 1994, agriculture production de- rapid monetary expansion, they could exacerbate infla- clined by 5.3 percent, because of droughts, erratic rains, tionary pressures and result in a real appreciation of the and pest infestations, but this decline was more than exchange rate. This may have already started to happen, offset by strong performance in the industrial and serv- as the annual average inflation rate reached 7.6 percent ices sectors, which grew by 7.6 and 9.6 percent, respec- in 1994 (17.1 percent on an end-period basis), compared tively, and GDP grew by 1.3 percent. with an average of below 3 percent in fiscal 1994. The 71 Ethiiopia governenit is considering policy measures to prevent addition, following recently formulated sector strate- these negative trends. in particular tightening fiscal and gies, resources have been shifted substantially toward monetary policies. providing basic social and economic services, and away 'rhe government has implemented several important from military uses. Budget allocations for education economic measures over the past two years. All export increased from 7 percent in fiscal 1989 to 13 percent in taxec, except on coffee, have been eliminated, and li- fiscal 1994, allocations for health increased from 3 cense fees have been reduced for coffee exporters. All percent to 7 percent, and allocations for roads increased retail prices, except petroleum and pharmaceuticals, from 3 percent to I I percent during the same period. The have been decontrolled. Maximum import duties were government has also developed detailed strategies for lowered from 200 to 80 percent. One-stop investment overall poverty reduction, population management, offices were opened in the past year at the central gov- women, education, health, and environment. The new ernment level and in some regions. Domestic private constitution guarantees the rights of women to own, participation in freight forwarding and clearing has been manage, transfer, and inherit properties, including ac- allowed, and the domestic private sector can now engage cess to. and transfer of, land. Moreover, the constitution in banking activities. The availability of foreign ex- protects women from customs that have damaged change for business, education, and medical travelers women mentally and physically over generations. has been increased and the need for clearance from the The government has launched an important move tax authorities for foreign travel eliminated. The coffee toward regionalization, which is transferring significant marketing parastatal's monopoly status has been abol- autonomy and responsibility to regional administra- ished by allowing private-sector coffee marketing. Im- tions. This is a major departure from the highly central- plementation of the new land leasing policy has started, istic regimes that ruled Ethiopia for generations, and is with the first urban land auction conducted in January designed to respond to the aspirations of various ethnic 1995. While the transitional government has made im- groups for a larger degree of control over their own portant strides ii, reversing the negative policies of the affairs. past, constraints to future growth remain. In the produc- tive sectors, a key goal is the creation of competitive Continuing Reform markets. The transitional government set out its priorities for the next phase of reforms in the October 1994 third policy framework paper. In the fiscal area, measures to be taken With an estimated GDP per capita of $100 a year, Ethio- to increase revenues include reducing tax rates, broad- pia is one of the poorest countries in the world. Over half ening the tax base, simplifying tax brackets, and increas- the population, which is growing at over 3 percent a ing taxpayer compliance. In the area of monetary and year, suffers from chronic food insecurity. Ethiopia has financial policy, positive real interest rates are to be some of the worst social indicators in Africa, with an maintained and the central bank is expected to increase infant mortality rate of 122 per 1,000 live births, mater- the range of minimum deposit and maximum lending nal mortality of 700 per 100,000 live births, and a rates. The trade regime is to be further liberalized, with mortality rate of over 20 percent for children under five. lower tariff rates and fewer import duty exemptions. The Primary school enrollment is only 25 percent, and even government also plans to review and amend the legal lower for girls. More than half the population has no and regulatory framework to remove impediments to health facilities within ten kilometers. Only about 17 private-sector activities, and the recently established percent of the total population, and less than 12 percent privatization agency will develop a plan and timetable of the rural population, has access to safe potable water. for public enterprises to be divested and define the Almost 40 percent of urban dwellers and most of the modalities of privatization (sales, leases, and manage- rural population have no sanitation facilities. ment contracts). Emphasis will also be placed on selling While reducing this massive structural poverty is a government-owned houses to the private sector and long-term endeavor, the transitional government has compensating the previous owners of nationalized already taken important steps to ameliorate many of the houses. more urgent problems. The government has established Key policy reforms in agriculture are expected to social safety nets to reintegrate displaced people and include liquidating or divesting state farms and phasing demobilized soldiers into their communities, and pro- out the subsidy on fertilizer prices, with a view to vide training and employment for the disabled and or- eventual full deregulation. The government is seeking phans. A social rehabilitation fund has been launched to financing to implement a recently completed national support income generation and community efforts to conservation strategy, and has drafted a national energy improve essential infrastructure and social assets. In policy and strategy. The government is preparing a road 72 Ethiopia sector plan that includes expanding the rural road net- pian industry from international competition. Good in- work and ensuring adequate maintenance and upgrading itial progress has been made in encouraging private of existing roads. sector development. Expenditures on basic education and health are ex- Ethiopia's road transport system cannot support an pected to increase further. Legal restrictions on family efficient and market-based production and distribution planning will be removed, and actions are to be taken to system. Its road density is one of the lowest in Africa. remove legal and administrative constraints on women's Nearly three-quarters of farms are more than half-a- access to credit, land-use rights, inputs, and services. day's walk from all-weather roads. About 65 percent of the road network is in poor condition, largely as a result Key Sectoral Issues and Policies of inadequate maintenance, the effects of war, and heavy vehicle overloading. Deregulation of the transportation Agriculture accounts for about 55 percent of GDP (at system and liberalization of freight tariff rates has be- factor cost), 60 percent of merchandise exports, and 80 gun, and the government is preparing a road sector percent of employment, and will remain the major con- strategy aimed at institutional strengthening, priority tributor to economic growth in the medium term. The road rehabilitation and maintenance, new investment in potential for expanding output is large if actions are all classes of roads - including rural access roads - taken to expand irrigation, improve inputs supply, cor- and improving village travel and transport. Ethiopia is rect price incentives, strengthen research and extension one of the countries most poorly supplied with modern systems, and rehabilitate infrastructure. Higher output energy and is highly dependent on woodfuels. In 1989 can help reduce the chronic food deficit, boost exports, its per capita consumption of petroleum and electricity and stimulate growth in the agroprocessing industry and was about one-fourth of that in Kenya. In recent years, related services. Agriculture growth stagnated at 0.6 the demand for energy, especially electricity, has in- percent in the 1970s and 1980s, mainly because of creased rapidly. devastating droughts and pest infestations, land loss due Ethiopia is undertaking a water resource manage- to environmental degradation, poor infrastructure, a leg- ment plan, with assistance from bilateral donors. Provi- acy of disrupted agricultural production caused by civil sion of water supply and sanitation services is severely conflict, and inappropriate policies. The sector has re- deficient. Institutions, both at the center and the regions, sponded positively to reforms, which include the free- lack capacity to plan, operate, and maintain the services. dom to hire farm labor and decontrol of agricultural The government's main sector objectives are to rehabili- marketing. The government's long-term development tate and improve the physical infrastructure and opera- strategy is based on agriculture-led industrialization that tions of the sector, and to build management capacity. predicates using agriculture as a primary stimulus to Although Ethiopia has improved its export diversity generate employment and income for the poor, and as since 1989, it still relies heavily on coffee exports, which the springboard for developing other sectors. Agricul- amounted to more than one-half of total commodity tural production is to be increased by improving produc- exports in fiscal 1994. On the services account, Ethio- tivity on smallholder farms and encouraging large-scale pian Airlines continues to be an important source of private commercial farms, especially in the lowlands. foreign exchange. Recently, merchandise exports have Despite considerable progress in liberalizing agricul- recovered substantially in response to devaluation of the ture and taking measures to mitigate the impact of exchange rate and more liberalized incentives. More- drought, a structural food deficit is projected to last into over, the recent sharp increase in world coffee prices the next century. The need to ensure adequate food holds good prospects for significantly increased export supplies is a heavy burden on the central and regional earnings this coming year; exports will be further en- authorities and highlights the urgency of accelerated hanced by recent signs of export diversification in hor- agriculture development and food-security planning. A ticultural products, sesame, and haricot beans. key concern of the Ethiopian authorities is to reduce the rural population's vulnerability to famine. Food security Environment is to be pursued through a concentrated effort to increase the productivity of smallholder agriculture. Land degradation caused by inappropriate forest clear- Industry accounts for only 10 percent of GDP, and ance, soil surface exposure, and overgrazing stands out exports of manufactured products are only about one- as the most severe environmental problem in Ethiopia fourth of merchandise exports. The main factor contrib- today. It is estimated that nutrient loss and soil erosion uting to the past poor performance in the sector was result in forgone agricultural production of close to excessive regulation, including severe restrictions on 600,000 tons of grain per year, equivalent to 90 percent domestic and foreign private investment and a policy of Ethiopia's structural food deficit in 1993. Degrada- environment biased against exports that isolated Ethio- tion and lack of adequate water resources have also 73 Ethiopia severely affected crop and livestock production, human countries). By June 1992 arrears to creditors reached health, and industrial and commercial processes. Urban $716 million - including commercial defense credits degradation in the form of poor sanitation, inadequate but excluding official defense credits by the former solid waste management and drainage, and to a lesser Soviet Union. Since then, Ethiopia has made significant extent industrial pollution is also becoming increasingly progress in improving its external debt situation and problematic. The government has recently completed a creditworthiness by obtaining debt relief of at least $673 forestry action plan, which together with the national million as a result of negotiations with the Paris Club in conservation strategy completed earlier constitutes the December 1992. This reduced Ethiopia's debt service national environmental action plan. This plan sets out a ratio from 82 percent in fiscal 1992 to 49 percent in comprehensive framework for addressing environ- fiscal 1994. The government is trying to secure com- mental problems across every sector and lays the basis parable debt relief from other bilateral official credi- for sustainable economic growth in the future. The tors, and a debt buy-back operation, scheduled for newly established National Environmental Protection completion in fiscal 1995, is expected to retire a large Agency will have primary responsibility for setting portion of Ethiopia's commercial debt. Public exter- standards and enforcing environmental legislation, nal borrowing on nonconcessional terms is now limited while national and regional program coordination com- to trade-related credits of less than one year. mittees are expected to be the main vehicles for ensuring overall coordination, policy direction, and monitoring. Medium-Term Prospects The government is also preparing a biodiversity strat- egy, which will enable Ethiopia to meet its commitments Given continuing reforms, Ethiopia's real GDP is ex- under the terms of the UN Convention on Biological pected to grow about 6 percent for fiscal years 1995-97. Diversity. The annual budget deficit before grants is projected to be about 13 percent of GDP over this period. This is External Debt largely due to the need to increase operations and main- tenance spending and to rehabilitate (and selectively Ethiopia's stock of external debt more than tripled over expand) infrastructure. Part of imports will continue to 1982-92. A rapidly widening current account deficit support reconstruction of the war-torn economy. during this period was financed largely through official Growth prospects for exports are optimistic in the next transfers (mostly from relief assistance) and external few years, because of expected increases in coffee ex- loans (mostly multilateral and former Eastern Bloc port receipts. 74 Ethiopia Population mid-1993 (millions) 51.9 Income group: Low GNP per capita 1993 (US$) 100 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 lnv wtmnt to GDP rtlo (%) Gross domestic investment/GDP 9.0 8.9 9.3 12.2 16.7 20 Exports of goods and nfs/GDP 8.2 7.8 4.6 12.3 Gross domestic savlngs/GDP 1.0 4.3 3.0 3.5 4.4 Gross national savIngs/GDP 3.4 6.1 9.4 9.9 10.8 Current accoDunt balance/GDP.. . Interest payments/GDP .. _. Total debt/GDP Total debtlexports 285.4 444.6 562.7 621.3 896.5 as so DI 2 GDP: PRODUCTION 1 985 1990 1992 193 1994 Shr dof GDP by sdor (%) (% of GDP) Agriculture 53.3 49.3 64.4 60.5 57.0 1C0 Industry 12.8 12.7 8.4 10.3 10.1 Manufactuing 4.9 4.9 2.2 3.8 3.3 Services 33.9 38.0 27.1 29.2 32.9 196590 1990-04 192 1993 1994 * (average annual growth) Agriculture 6.3 -0.4 -4.6 8.4 -8.5 Industry 0.2 -3.2 -17.5 27.1 1.7 Manufacturing 4.1 1.1 -9.6 51.9 7.1 Services 5.7 6.6 4.9 18.1 13.4 o t t as 90 G1 92 92 94 GDP 5.0 1.9 -2.7 12.8 2.3 EAgricultur. mindustry Soervics GDP: EXPENDITURE 1966 9D 1992 1993 1994 Gowthd ofDGU and OUP (%) (% of GDP) Private consumption 84.6 77.2 86.7 85.7 83.2 14 General govemment consumptIon 14.4 18.5 10.3 10.8 12.4 12 Gross dorestic investment 9.0 8.9 9.3 12.2 16.7 10 Exports of goods and nf 8.2 7.8 4.6 12.3 * Imports of goods and ns 16.2 12A 10.9 24.6 1965-9 1 190044 19m 1993 1964 4 (average annual growth) 2 Private consumption o . \ . . 0 General govemment consumption -2 . . tO \ t23 t4 Gross domestic investment 41 \ . Exports of goods and nfs 4 Imports of goods and nfs . . Gross national product 4.9 1.6 -2.8 12.4 1.8 Gross national income -GDI -6-GDP PRICES and GOVERNMENT FINANCE 1936 1990 1992 1993 1994 |h ofGM1P1smndCPI%) Domestk pd 40 (% change) a Consumer pries 19.1 5.2 10.5 3.5 30 Wholesale prices 20 I / \. Implidt GDP dflator 28.1 1.7 5.7 13.3 3.1 Is 10 Govwmnwnt finae s (% Of GOP) 0 Current budget akne t 1o n 94 Overall surplus/defit | -GDP dc. -*CPI Note: Social indicators (except for population data), as well as data on trade, balknc of paymwnt, and debt, incde Etrea. 1994 data are preliminary estimates. Figures In taice are for years othr than thoe specified. 75 Ethiopia POVERTY and SOCIAL 1985-90 1990-94 Development dlamond- (annual growth rates) Life Population 2.8 3.0 Life expectancy Labor force 2.0 2.2 T most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Utfe expectancy at birth 48.0 per primary Infant mortality (per 1,000 live births) 116.6 capita enrollment Child malnutrition (% of children under 5) 46.9 Access to sale water (% of population) 17.5 Energy consumption per capita (kg oil equivalent) 23.1 Illiteracy (% of population age 15+) Acress to safe water Gross pfimary enrollment (% of school-age population) 22.0 TRADE (millions US$) 1985 1990 1992 1993 1994 Export and Import lovels (mill. USS) Total exports (fob) 359 366 154 222 270 1,400 Coffee 225 196 81 126 149 , Hides 46 64 28 32 Manufactures .. .. Total imports (cif) 975 881 875 1,051 1,055 am0 Food 283 74 132 166 Fuel and energy 186 109 120 240 Capital goods 29 30 30 374 Export price index (1987=100) 96 101 40 40 2 Import price index (1987s100) 101 77 60 59 0 I Terms of trade (1967=100) 95 130 67 68 Be Be go 91 92 93 94 Openness of economy (tradeGDP,%) 24 20 16 37 nExpons M Imports BALANCE of PAYMENTS (millionsIUSS) 1988 1990 1 n2 1993 1994 Currnt account balance to GDP ratio (%) Exports of goods and nfs 549 672 453 507 529 o - Imports of goods and nfs 1,082 1,069 1,074 1,263 1,235 .1 so 9g 94 Resource balance -533 -397 -622 -756 -706 Net factor income -33 -67 -85 -75 -97 Net current transfers 193 221 526 398 408 43 Current account balance -4 Before official transfers -373 -243 -180 -433 -395 .| After official transfers -123 -131 41 -183 -180 Long-term capital inflow 333 99 48 56 115 Total other items (net) -163 -42 -23 231 293 7' Changes in net reserves -48 73 -66 -104 -228 4. Memo: Reserves excluding gold (mill. USS) 148 20 232 456 544 Reserves including gold (mill. US$) 216 55 270 500 588 Conversion rate (locatUS$) 2.1 2.1 2.1 4.3 5.1 EXTERNAL DEBT Export retias 19l5 1990 1992 1993 1994 Structure of external debt (%) Long-term debt/exports 264.4 426.7 540.1 595.2 881.0 1°0 IMF crediVexports 10.1 0.8 2.5 6.4 9.3 Short-term debtlexports 11.0 17.2 20.1 19.7 6.2 75 Total debt service/exports 22.5 28.0 13.5 9.0 16.6 o PNii| GDP ratios U PrMt. Long-term debttGDP .. .. .. .. .. * Off. IMF credit/GDP .. .. Short-term debt/GDP .. .. Long-tenn debt ratios Private nonguaranteed/tong-term 0.0 0.0 0.0 0.0 0.0 Public and publidy guaranteed a ° I Private creditors/long-term 15.5 9.9 12.8 10.7 9.7 1 a 90 91 22 92 94 Official creditors/long-term 84.5 90.1 87.2 89.3 90.3 The developrnent diamond shows our key Indicators of development in the country (in bold) compared with ats income-group average. H data are missing, the diamond will be incompiete. 76 Gabon G abon is rich in oil, manganese, uranium, and ence on oil. The modern sector is dominated by ineffi- forests, and has one of the highest per capita cient public enterprises and the private sector is stifled. incomes in Sub-Saharan Africa, with a postde- A strong Gabonese entrepreneurial class has yet to valuation GDP per capita for 1994 estimated at emerge. The development of agriculture and small and $3,808. In terms of social indicators, however, Gabon medium enterprises, which ought to provide employ- has achieved far less than comparable countries - ment and income opportunities for the bulk of the labor there is a 72-place gap between Gabon's ranking based force, has been hindered by a loss of competitiveness. on the UN Human Development Index, at 114 out of The underdevelopment and inadequate maintenance of 173, and its ranking based on GDP per capita, 42 out of the transport sector, combined with excessive pump 173. In 1993, 37 percent of adults and 44 percent of prices for gasoline, imply a significant bottleneck to females were illiterate, infant mortality was 92.2 per developing other sectors, particularly agriculture and 1,000 live births, and life expectancy at birth was 54 forestry. years. With just over 1 million inhabitants and an area Gabon's economy has been in decline since 1986, of 268,000 square kilometers, Gabon is sparsely popu- when the price of crude oil fell 50 percent. Public invest- lated, but the population is growing at 2.8 percent per ment fell as government revenues declined; real nonoil year. It is the most urbanized country in Africa (73 GDP shrank 1.8 percent a year from 1985 to 1994. The percent), with almost half of the population - just crisis significantly curtailed employment in the formal under 419,000 - concentrated in the capital, Libre- sector: the public and parapublic modern sector con- ville. There is also a significant foreign presence, and tracted by 25 percent from 1985 to 1992; the number of the 18 percent of the adult population that is non-Ga- jobs in the modern private sector fell by over 50 percent, bonese substitutes for Gabonese labor at all levels. and oil employment declined 18 percent. The nonoil While basic infrastructure exists in telecommunica- private sector accounted in 1992 for only 28 percent of tions, transportation, and energy, it requires total employment. The loss-making parapublic sector maintenance and upgrading. Finally, Gabon offers one accounts for 35 percent of value added and over 40 of the largest remaining pristine ecosystems in the percent of employment of the nonoil corporate sector. In world. Two-thirds of its forests are either untouched or 1993, the last year for which comprehensive data are relatively undisturbed; it is estimated that they harbor available, subsidies to the public enterprise sector were over 8,000 plant and 600 bird species, contain Africa's equivalent to 2 percent of GDP. largest population of forest elephants, and provide The government resorted to accumulating arrears to sanctuary for at least 20 primate species. finance its budget deficits, and by December 1993 ex- Gabon's economy is characterized by the distortions temal arrears had swollen to $1.1 billion, about one- that affect many resource-rich countries in which exces- third of external public debt. The current account of the sive demand for nontradable goods raises factor costs, balance of payments was in deficit because of the dis- impeding diversification into less resource-intensive equilibrium of public finances. The government's finan- tradable products. As a result, the basis for diversified cial difficulties also threatened to paralyze the domestic growth in Gabon has yet to be built. The economy is financial system. dominated by the oil sector; it accounts for one-third of GDP, close to half of government revenue, 50 to 60 percent of gross investment, and over three-quarters of merchandise exports. The country relied in the past on In January 1994 the CFA franc was devalued 50 percent spending oil revenue on public investment projects with against the French franc and the real effective exchange poor rates of return and on a scale that exceeded the rate improved by some 40 to 45 percent. The devaluation absorptive capacity of the economy, which undermined created new possibilities for stabilization and adjust- Gabon's competitiveness and exacerbated its depend- ment in Gabon, which negotiated a new program with 77 Gabon the IMF. In April a rescheduling agreement was con- The December 1993 presidential election was an cluded with the Paris Club and in May with the London important stage in Gabon's transition toward multiparty Club. These agreements also covered most outstanding democracy, which began with a national conference in arrears on the external debt. March 1990 and was followed by multiparty legislative After the devaluation, the government took several elections in September 1990. The main mandate of the meacures to maintain the real exchange rate deprecia- new government is to change the electoral code to in- tion, including capping public sector wage increases at crease transparency and credibility before the next leg- 10 percent in 1994 and giving appropriate signals to islative elections, slated for April 1996. A campaign to guide wage negotiations in the private sector. It also took regularize or repatriate illegal immigrants by February a regional lead in reducing average customs duties and 15, 1995, has been essentially completed without major simplifying the tariff structure to a four-rate system of incident. 5, 10, 20, and 30 percent, and lifted all quantitative restrictions on imports, except sugar, and replaced them Medium-Term Outlook with a three-year surtax to be reduced progressively from 30 percent to zero. It reduced indirect taxes on The government is laying the foundation of a strategy petroleum products sold on the domestic market to based on redefining the roles of the state and the private maintain pump prices unchanged until a new system sector in the economy, including disengaging from di- with value-added taxes is instituted in April 1995, and rect involvement in productive sectors while increasing implemented a new electricity tariff structure. its role in providing public goods, including protecting The IMF program is broadly on track. The primary the environment and biodiversity, and ensuring ade- surplus amounted to $205 million, or 5 percent of GDP, quate and efficient services in health and education. The twice the program's target, and domestic arrears were strategy also calls for reinforcing Gabon's institutional reduced by $109 million, almost one-third of the out- framework to be more conducive to the development of standing amount. A shortfall in nonoil revenue was efficient markets; and giving competition and market compensated by oil revenue greater than expected and mechanisms a greater role as the main regulators of by lower public investment expenditures than pro- private-sector activity. grammed. Inflation for 1994 was 35 percent, and private The government is committed to restructuring the sector wage increases did not exceed 20 percent. Import state sector, and has created a privatization unit within volume dropped 16 percent while export volume grew the Ministry of Commerce to oversee the withdrawal of by over 7 percent. the state from productive activities. A privatization law The 1994 devaluation had the anticipated contrac- and decree to apply the 1989 competition law have been tionary effect on private demand. GDP growth was drafted. Plans for restructuring the largest public enter- sluggish at 0.3 percent, while nonoil GDP fell by 6.2 prises - electricity and water, post and telecommuni- percent. Agriculture, services, and manufacturing con- cations, the refinery, the railroad, and the airline - have tracted, while other industrial sectors grew, buoyed by been submitted. The electricity firm is already under improved exports of oil, timber, and uranium. An 8.5 private management. percent rise in investment expenditures and a 3 percent The government's program of economic reforms is increase in government spending partially alleviated forecast to generate nonoil GDP growth of 3.5 percent the impact of a 18 percent drop in consumption. Do- a year over the medium term. In the longer run, as mestic savings reached a post-1986 high of almost 50 structural reforms bear fruit and increase the aggregate percent of GDP. The current account surplus contin- productivity of investment, nonoil GDP growth is pre- ued to climb from 1.5 percent in 1993 to 8.1 percent dicted to accelerate to about 6 percent a year. The incre- in 1994. Government expenditures exceeded revenue mental capital-output ratio is expected to decline from by $78.5 million in 1994, corresponding to a budget a historical level in excess of 10 to about 6 within the deficit of 2 percent of GDP. Overall government in- next decade. Nontraditional exports are projected to debtedness remains a serious problem, with $3.5 bil- increase at about 10 percent a year, in contrast to total lion in public and publicly guaranteed external debt exports, which will remain dominated by petroleum outstanding at the end of 1994, the equivalent of 95 (which is expected to stagnate) and are thus forecast to percent of GDP. grow at less than I percent per year. 78 Gabon Population mid-1993 (millions) 1.0 Income group: Upper-middle GNP per capita 1993 (US$) 4,960 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 Invetment to GDP ratio (%.) Gross domestic investment/GDP 38.3 24.4 21.8 21.5 25.3 40 Exports of goods and nfs/GDP 56.9 50.2 46.8 46.4 62.4 Gross domestic savings/GDP 51.9 41.2 36.0 36.1 47.0 3 Gross national savings/GDP 42.3 27.7 20.6 20.9 27.3 20 1 Current account balance/GDP -4.8 3.3 -1.1 -0.7 1.8 2 0 Interest payments/GDP 1.6 1.4 4.2 0.6 2.4 Total debUGDP 32.9 72.7 68.3 69.7 102.8 0 Total debt/exports 56.9 144.2 143.3 148.4 167.7 8s 90as 91 3 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 SharmeolGDPby sctor(%) Agriculture 6.2 8.6 8.4 8.2 7.9 1n0 Industry 59.5 49.6 46.1 44.5 52.0 1 I Manufacturing 5.2 11.6 11.7 11.4 11.0 Services 34.3 41.8 45.5 47.4 40.1 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 1.1 -0.3 -2.2 1.1 -3.4 Industry 1.4 2.8 -2.5 4.0 2.2 Manufactunng 16.4 -0.3 -2.2 1.1 -3.4 Services 0.0 -9.2 -5.0 4.8 .39.9 0 ° Be 90 9r 32 9 9 GDP 0.8 -2.1 -3.6 4.1 -16.1 L *Agriculture olndustry oServices GDP: EXPENDITURE (% of GOP) 1985 1990 1992 1993 1994 Growth rates of GOt and GOP(%) Prvate consumption 29.5 41.9 44.2 48.2 40.5 1'°°T General govemment consumption 18.6 16.9 19.8 15.7 12.6 Gross domestic investment 38.3 24.4 21.8 21.5 25.3 0 Exports of goods and nfs 56.9 50.2 46.8 46.4 62.4 0\ Imports of goods and nfs 43.2 33.4 32.5 31.8 40.7 40 1985-90 1990094 1992 1993 1994 (average annual growth) 2 \ Private consumption -0.5 -15.0 5.8 0.8 -59.8 General govemment consumpton -6.4 1.2 1.8 -1.3 2.9 0 Gross domestic investment -9.4 -2.8 -23.4 6.0 8.5 es91 9 93 4 Exports of goods and nfs 6.4 4.5 3.7 6.1 4.9 1-2 Imports of goods and nfs -7.7 -1.6 4.2 1.5 -9.7 -40 Gross national product 0.0 -5.0 -7.0 3.2 -23.8 Gross national income -3.9 -8.8 -7.8 1.2 -30.9 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator ard CPI(%) Doadtlc pric,s 70 (% change) so Consumer prices -12.9 7.7 -9.6 .. .. Wholesale prices 11.8 .. .. ..40 Implidt GDP deflator 8.4 6.5 0.0 1.0 68.4 3D 20 Govnmrfent flnance 1 (% of GDP) . O 'I Current budget balance 22.5 0.2 0.2 -0.2 3.2 D i9 s n 91 94 Overall surplus/deficit -5.0 -4.4 -5.2 -5.8 -4.1 - GOP del. -CPl Note: 1994 data are preliminary estmates. Figures in Italics are for years other than those specified. 79 Gabon POVERTY and SOCIAL 1985-90 199044 Developmrnt diamond' (annual growth rates)Liexpcay Population 1.7 1.7 Life expectancy Labor force 0.7 0.9 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Ut. expectancy at birth 53.9 per primary Infant mortality (per 1,000 live births) 92.2 capita enrollment Child malnutrition (% of children under 5) 25.0 Access to sale water (% of population) 72.0 Energy consumption per capita (kg oil equivalent) 953.3 Illiteracy (% of population age 15+) 39.3 Access to sale water Gross primary enrollment (% of school-age population) .. TRADE (millions US$) 1990 1992 1993 1994 ExportandImport lvels (mill.USS) Total exports (lob) 1,951 2,489 2,259 2,209 2,056 2.500 Fuel 1,629 1,994 1,844 1,772 1,681 Timber 122 225 199 227 209 2,00_ Manufactures 506 540 Total imports (cd) 977 805 886 835 735 1.500 Food 161 143 174 166 146 Fuelandenergy 50 11 12 11 10 1,_ Capital goods 215 354 335 320 281 0 Export price index (1987=100) Import price index (1987=100) .0 Terms of trade (1987=100) .. .a. . . s as go gs 92 03 94 Openness of economy (tradcaGDP,%) 100 84 79 78 103 oExpars U Imports BALANCE of PAYMENTS (millions USS) tuWa0 19 19 1994 |Cunrt ccount balance to GOP ratio(%) Exports of goods and nis 2,090 2,730 2,607 2,542 2,403 T Importsofgoodsandnfs 1,913 1,812 1,811 1,743 1,570 2 F El Resource balance 177 919 796 798 833 0 o Net factor income -244 -602 -714 -696 -690 2 90 4 t i 94 Net current transfers -109 -136 -144 -139 -72 | Current account balance J1 Before official transfers -176 181 -63 -37 71 -10 Afterofficialtransfers -163 203 -52 144 264 -12 Long-term capital inflow 213 -260 -217 -148 179 -14 - - Total other items (net) -111 314 84 -55 -326 *1i Changes in net reserves 61 -256 186 59 -117 18l Memo: Reserves exdudcng gold (mill. US$) 193 274 71 1 Reserves including gold (mill USS) 197 279 75 6 Conversion rate (locallUS$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT ezgpol rat* 1985 1990 1992 1993 1994 Structure of extnal dabt%) Long-term debt/exports 44.5 114.0 113.1 112.3 146.0 100 IMF crediVexports 0.0 5.1 3.0 1.8 2.6 Short-term debtlexports 12.4 25.2 27.2 34.3 19.0 7S Total debt service/exports 11.6 6.3 16.2 5.7 9.1 o PNG GDP rotaos Prvt. Long-term debt/GDP 25.8 57.5 53.9 52.8 89.5 seo a *Of IMF creditGDP 0.0 2.6 1.4 0.8 1.6 Short-term debt/GDP 7.2 12.7 12.9 16.1 11.7 Long-tenn debt ratl_s Private nonguaranteed/tong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed a ° | Private creditors/long-term 64.0 22.6 20.5 20.4 16.6 1 10 90 II 92 3 H Official creditorsdlong-term 36.0 77.4 79.5 79.6 83.4 'The development diamond shows four key indicators of development In the country (in bold) compared with ts Income-group average. If data are missing, the diamond will be incomplete. 80 The Gambia he Republic of The Gambia is a narrow strip of national community, which generated generous aid and 10,700 square kilometers on the west coast of technical assistance. However, on July 22, 1994, the Africa surrounded on three sides by Senegal. government was overthrown in a bloodless coup by Limited natural resources and an underdevel- junior officers that charged it with widespread corrup- oped human capital base have constrained economic tion and abuse of power. The new government of the diversification and growth. High population density on Armed Forces Provisional Ruling Council expressed its agricultural land -207 inhabitants per square kilometer intention to persevere with the economic policies of the in 1991 - and very high rates of urban population past and honor all external obligations. After foiled coup growth are generating mounting concern about environ- attempts in November 1994 and January 1995 the pro- mental issues. The Gambia's open undiversified visional council accepted a civilian National Consult- economy is highly vulnerable to changes in the external ative Committee's February 1995 recommendations to environment: adverse weather, fluctuations in the world return the country to constitutional rule in July 1996. price of the main export commodity (groundnuts), a The military takeover led to an almost complete halt changing aid climate, economic conditions in neighbor- in external support for The Gambia. Except for humani- ing countries, and shifting demand in Western Europe tarian aid, key donors have suspended all program aid for tourist services. including balance of payments support. The withdrawal The Gambia is one of the least developed countries of donors and the subsequent decline in private sector in Sub-Saharan Africa, with a 1993 per capita GNP of confidence have had devastating effects on the economy. $350. The mainstay of the economy has traditionally In 1985 The Gambia adopted a comprehensive been rainfed cultivation of cereals, groundnuts, and macroeconomic stabilization and adjustment program other agricultural products, which have been adversely aimed at liberalizing trade and price policies, estab- affected by irregular and inadequate rainfall in the past lishing a flexible exchange rate and liberalizing interest decade. Groundnuts provide about 70 percent of export rate policies, streamlining credit and fiscal policies, and earnings, and past economic policies did little to privatizing public enterprises. Implementation of re- broaden export-earning capacity. Potential sources for forms was generally satisfactory, and macroeconomic diversifying growth in The Gambia's economy lie with targets were mostly met. A successor Program for Sus- agriculture, mainly horticultural and livestock products, tained Development launched in 1990 aims at consolidat- agricultural and livestock product processing, and light ing past policy reforms and promote private-sector-led manufacturing, fisheries, tourism, and other services. growth. About one-third of food requirements, all fuel, interme- diary and capital goods requirements, and most manu- Recent Economic Developments factured goods are imported. Although recent efforts to diversify exports through tourism and re-exports have For the second consecutive year, the Gambian economy somewhat improved earnings and broadened the export has had to withstand severe unanticipated shocks. Over base, this has not been sufficient to sustain expanding the past 18 months its vulnerable economic base has import requirements been affected by three major shocks in addition to po- litical unrest. Senegal effectively closed its border in Recent Political Developments August 1993 to stop the re-export and transit trade. The Central Bank of the West African States suspended the From independence in 1965 until July 1994 The Gambia external convertibility of the CFAF in August 1993, had a democratic multiparty parliamentary system. The making re-export and cash crop transactions in CFAF last presidential election was held in April 1992. Politi- less attractive for The Gambia, and in January 1994 the cal stability and a good record on issues such as respect CFAF devalued and accompanying structural reforms for human rights won The Gambia prestige in the inter- were introduced in Senegal and other CFA countries. Its 81 The Gambia tourism industry also collapsed after an attempted coun- While the government's response to the external tercoup in November 1994. These shocks slowed eco- shocks has been timely and appropriate, it is too soon to nomic activities, which adversely affected employment, assess with any certainty the magnitude of the combined investment and income levels, government revenues, effects of political uncertainty and the CFAF devalu- and the external position. While the developments in the ation and Senegal's accompanying adjustment measures CFA Zone affected re-exports and related transport, the that have affected The Gambia's re-export trade. Private military coup and subsequent related events shattered traders in The Gambia consider the border issue the key fledgling tourism, construction, horticulture, and com- hindrance to the re-export trade and have already diver- munications industries. The reform-induced supply re- sified their re-export markets in the region. sponse and investor confidence in service-related Reform programs have been broadly on track since activities have been significantly reduced, and as in the 1991. In particular, progress has been made in public prereform years, the thin economic base is once again enterprise reform as the government privatized core as- virtually dependent on good agricultural production, sets of the Gambia Produce and Marketing Board in July particularly groundnuts. 1993, leased the Gambia Utility Company to a foreign Despite external shocks, fiscal 1994 macroeconomic private managing company in July 1993, signed a per- performance was satisfactory, and the reform program formance contract with the Civil Aviation Authorities, remained on track. Although there was a reduction in and granted autonomy to the Post Office in early 1993. re-export trade of about 30 percent, it is estimated that Ghana's Customs Department began operating a comput- GDP grew by about 1.5 percent in real terms as a result erized system to improve import duty collection in late of above-average performance in agriculture, tourism, 1993, and reorganization of the department is under way construction, and communications during the period. after the July 1993 removal of a number of corrupt The government emergency policy measures, first put in customs officials. In January 1994 the government initi- place in September 1993, and further strengthened in ated measures to broaden the income tax base and its March 1994, were key in effectively preserving the fiscal administration. Results thus far have been satisfactory. and monetary position. Government revenue collection After the first six months of military rule the overall was broadly on target, reflecting improvements in cus- macroeconomic framework is relatively intact, although toms and income tax administration. Inflation was kept there is evidence of attempts and actual instances of in check at 5 percent on an annual basis. External reserves unjustified government interventions in market-based remained at a comfortable five month's worth of imports. policies, including interference in the importation and The outlook for fiscal 1995 is less promising. With distribution of rice and some privatized enterprises, and the exception of agriculture (led by a good harvest of the lack of an effective collection mechanism for corpo- groundnuts), with an estimated real growth rate of about rate taxes owed by public enterprises. 11 percent in fiscal 1995, all other sectors are registering Progress has been made in revising and expanding a significant decline. Preliminary estimates suggest that the tax base and improving tax collection efficiency and the economy may decline as much as 4 percent in real reducing budgetary expenditures while allowing for terms. Tourism - following November 1994 travel higher recurrent expenditures on education and health restriction by the British and Scandinavian authorities and higher capital expenditure for priority sectors. The - horticulture, and construction have been hardest hit. budget process and the allocation system, however, are The government has been able so far to maintain a yet to be improved. A three-year rolling public invest- prudent fiscal and restrictive monetary stance. On the ment program introduced in 1989, is focused on reha- fiscal side, although revenue levels declined, the gov- bilitation and maintenance in the infrastructure and ernment has been effective in curtailing public spending social sectors and is an integral part of the budget in line with revenue collection. Improved tax admini- process. Public expenditure reviews are yet to be sys- stration has been a key in mitigating a more severe tematically undertaken in The Gambia, and only the revenue loss, and the restrictive monetary stance has Ministry of Agriculture has made good progress in de- been instrumental in maintaining macroeconomic sta- veloping a program budgeting system. bility. Money supply grew moderately, about 3 percent The tax base has shrunk since the July 1994 coup, in the first six months, reflecting government's policy particularly sales taxes and import duties, owing primar- of keeping it in line with nominal GDP growth and ily to the decline in tourism and overall low level of anticipated inflation. As a result of sound policies and economic activities. However, the level of recovery has good agricultural production, inflation has been main- improved as a result of enhanced tax administration. tained at about 7 percent. Despite the decline in foreign Collection of outstanding debts to the now-privatized exchange earnings, the level of external reserves is still Gambia Commercial and Development Bank by the healthy, providing a safe cushion against declining im- Asset Management Recovery Company has accelerated ports. The dalasi maintained its value. and doubled since the coup. The settlement of long- 82 The Gambia pending cases has significantly increased. The recovery safe sex behavior to help mitigate the spread of HIV- firm is in the possession of assets and collateral, whose AIDS. Progress in implementing these efforts has, how- liquidation has been deferred because of the saturated ever, stalled in the wake of the July 1994 coup. and depressed real estate market. Environment Poverty and Social Indicators Environmental deterioration is a critical long-term de- The Gambia's poverty is reflected in its low level of velopment constraint. In rural areas, natural resources human resource development, with social indicators that are threatened by increasing population pressures, over- are among the lowest in the region. Illiteracy is esti- grazing, salinity intrusion along the Gambia River, and mated at 73 percent. Official figures put primary school inadequate groundwater management. There is also a enrollment at about 60 percent, although recent house- potential threat to clean groundwater supply in the hold survey data suggest a level of 40 to 45 percent. Greater Banjul area as a result of its proximity to the Secondary-school enrollment is very low. Infant and ocean and a shallow water table. The government has child mortality rates are very high (the under-five mor- initiated a comprehensive effort to arrest the deteriora- tality rate is 242 per 1,000), and there is a high incidence tion of the environment through more careful use of of chronic infectious diseases and seasonal malnutrition. existing resources based on improved resource manage- Recent census data suggest a population growth rate of ment practices, and has prepared The Gambia Environ- about 4 percent, although heavy in-migration may ac- mental Action Plan. count for 0.5 to 0.6 percent of this. The development implications of a rapidly growing Medium-Term Outlook population and the gap in human resource development have been recognized by both the previous government The Gambia's strategy for the medium term focuses on and the Provisional Ruling Council. This awareness has stimulating private-sector development, maintaining changed the stated policy, which now calls for raising macroeconomic stability, and improving incentives as the long-term productive potential of the economy and the best means to adjust to a changing external environ- improving the welfare of the population through im- ment. However, recent political events could seriously proved allocation and efficiency in the use of public undermine its development objectives, and medium- resources, especially in education, health including fam- term targets established before July 1994 should be ily planning and HIV-AIDS control, and poverty allevia- reexamined in light of the deteriorating economic base tion. Access to primary education and health services and business confidence. If, however, The Gambia re- has been considerably expanded in recent years with turns to constitutional rule as planned in July 1996, donor assistance, and the challenge now is to consolidate political stability and a reestablishment of private-sector on gains made over the past five years and improve the confidence could spur growth in the medium term. Ex- quality of social services. The government adopted a pansion is anticipated in the agricultural sector, export- National Population Policy in June 1992, and family oriented small-scale manufacturing, fisheries, tourism, planning services, including HIV-AIDS prevention pro- and other services. As in the recent past, growth in the grams are being extended to health centers throughout agricultural sector will continue to reflect good harvests the country. The government's objectives are to reduce due to favorable weather conditions, while the service maternal and infant deaths, increase the contraceptive and industrial sectors would respond more slowly be- prevalence rate (estimated at 10 percent), and encourage cause of recent events. 83 The Gambia Population mid-1993 (millions) 1.0 Income group: Low GNP per capita 1993 (US$) 350 Indebtedness level: Moderately indebted KEY RATIOS 1965 1990 1992 1993 1994 Investment to GDP ratlo (%) Gross domestic investment/GDP 12.5 19.7 21.1 20.5 18.4 30 Exports of goods and nfs/GDP 40.8 62.2 61.0 53.2 54.3 Gross domestic savings/GDP 5.1 8.8 6.8 8.5 20 Gross national savings/GDP -4.5 7.7 9.8 10.8 Current account balance/GDP -16.3 -14.3 -1.8 -13.5 1 Interest payments/GDP 0.2 3.1 1.8 1.6 1.6 Total debt/GDP 112.6 108.0 105.8 107.2 109.6 D Total debt/exports 278.7 214.6 166.0 187.9 88 89 9s 91 92 93 94 GDP: PRODUCTION D1988 1990 1992 1993 1994 Shares of GDP by ector (%) (% of GDP) 0 Agriculture 29.7 27.3 27.2 27.5 Industry 11.4 13.5 14.7 14.6 Manufacturing 6.3 7.0 7.2 7.3 Services 58.9 59.3 58. 1 57.8 1986-90 1990-94 1992 1993 1994 so (averauge annuial growth) I Agriculture 0.2 5.0 -2.3 3.9 Industry 4.4 3.1 6.2 1.4 Manufacturing 5.7 0 Services 3.5 -1.1 1.9 1.5 as _ 9 go 91 +2 _ 94 as as go si 92 93 94 GDP 3.5 1.9 -5.8 7.4 -0.2 *Agriculture mindustry OServices GDP: EXPENDITURE (% of GDP) 196 1990 1992 1993 1994 Growthra of 0DI and GDP(%) Private consumption 81.9 72.3 75.2 73.7 25 General govemment consumptbon 13.0 18.9 18.0 17.8 20 Gross domestic investment 12.5 19.7 21.1 20.5 18.4 Exports of goods and nfs 40.8 62.2 61.0 53.2 54 3 Imports of goods and nfs 48.3 73.1 75.2 65.2 60.7 Is 1985-90 1990-94 1992 193 1994 (aswrge annial growth) 5 Private consumption 2.2 37.5 98.4 4.0 Genteral govermffent consumption 5.7 1.4 5.2 0.0 .. 0 Gross domestic investment 10.9 2.2 13.2 -2.5 -6.0 as 91 92 94 Exports of goods and nfs 11.1 2.2 23.8 -12.9 -4.6 5 Imports of goods and nfs 10.5 27.5 133.8 -7.0 1.2 Gross national product 5.1 2.8 -4.8 6.6 -0.2 Gross national income 4.7 21.7 58.6 5.0 10.6 -GDI -GDP PRICES and GOVERNMENT FINANCE 1965 1990 1992 1993 194 Change of GDPdeflatorandCPI(%) Dometic prices 18 (% change) is 14 Consumerprices 18.3 12.2 9.5 6.5 1.7 12 Wholesale prices I . \10 Implicit GDP deflator 54.9 10.3 16.3 -1.5 5.2 8 4 Govenmant finance 2 (% Of GDP) 0 -V Current budgetbalance 1.4 3.1 6.0 4.5 -2 89 90 91 92 s3 94 Overall surplus/deficit -6.9 -4.2 -2.1 -2.7 -GDP dei. -CPI Note: 1994 data are preliminary esimates. Figures In italics are for years other than those specified. 84 The Gambia POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development dlamond' Population 4.3 4.0 Life expectancy Laborforce 1.4 1.5 most recent estimate Poverty level: headcount index (% of population) 64.0 GNP / 'K Gross Life expectancy at birth 45.4 per - pnmary Infant mortality (per 1,000 live births) 130.0 capita / enrollment Child malnutrition (% of children under 5) Access to sale water (% of population) 55.0 Energy consumption per capita (kg oil equivalent) 56.6 Illiteracy (%. of population age 15+) 72.8 Access to safe water Gross primary enrollment (% of school-age population) 69.0 TRADE (millions US$) 1985 1990 1992 1993 1994 Export end Import levels (mill. USS) Total exports (fob) 66 . .i Groundnuts 10 .. . . Food 34 140. . Ma n uftact ure s 1 20et Total imports (cif) 96 eo + _ Fuel and energy 12 eo . . Capital goods 18 40 . Export price index (1987=100) . .. . 20 Import price index (1987=100) .0 .. . _ . , __ + - Terms of trade (1987=100) a. .. .. .. . rs 90 91 92 93 94 Openness of economy (trade/GDP,%) 89 135 136 118 115 oExports i tmporvs BALANCE of PAYMENTS 1985 1990 1992 1993 1994 - (millions US$) Current account balance to GODP ratio (%) Exporlsof goods and nfs 88 164 228 200 o - Jfl - Imporlsof goods and nfs 104 197 245 258 . 8 89 90 1 9! 93 94 Resource balance -16 -33 -17 -58 s -L Net factor income -24 -23 -3 -5 n -i| Net current transfers 5 9 13 14 Current account balance -is - Before official transfers -35 -47 -6 -49 After official transfers -1 -2 38 -7 20 Long-term capital inflow 20 26 37 14 -2 l Total other items (net) -9 -17 -36 -13 Changes in net reserves -10 -7 -40 7 -30 Memo: Reserves excduding gold (millk USS) 2 55 94 98 Reserves including gold (mill. US$) 2 55 94 98 Conversion rate (loca/USS) 5.0 7.9 8.8 9.5 9.5 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%) Long-term debtexpors 200.9 185.4 149.0 169.6 10 I°IIIIIIIIII IMF credit/exports 37.5 26.9 15.3 16.1 I M Short-term debt/exports 40.3 2.2 1.7 2.1 Total debt service/exports 10.4 22.3 12.6 13.5 7 5 pNG GDP ratios ..11 PrvM Long-term debt/GDP 81.2 93.3 94.9 96.8 100.9 . smOH IMF credit/GDP 15.2 13.6 9.8 9.2 7.9 Short-term debt/GDP 16.3 1.1 1.1 1.2 0.8 25- Long-term debt ratios Private nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 ° Private creditors/long-term 21.6 5.9 2.6 1.3 0.0 m 89 9s 91 92 93 94 Official creditors/long-term 78.4 94.1 97.4 98.7 100.0 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. It data are missing, the diamond will be incomplete. 85 Ghana G hana is endowed with a broad range of natural tures on social programs rose significantly in the initial resources, including arable land; forests; sizable years of the program, and most social indicators and deposits of gold, diamonds, bauxite, and manga- living standards improved. Value added in mining rose nese; and considerable potential for by about 9 percent in 1992, and a further 9 percent in hydroelectric power. The economy has traditionally de- 1993, reflecting investment in the rehabilitation of ex- pended on primary production and exports. Most of the isting mines, in new joint ventures, and in increased Ghanaian labor force is employed in agriculture. Agricul- small-scale mining activity. Based on the national ac- tural production - primarily small-scale - is counts statistics, gross national savings, after rising con- concentrated in staple food crops and cocoa; Ghana ranks sistently to reach 9.9 percent of GDP in 1991, fell to 1.2 among the world's largest producers and exporters of percent in 1993 but rose to 6.6 percent in 1994. Total cocoa. The service sector is the second-largest employer investment, after peaking at 16.5 percent of GDP in -over 25 percent of the labor force-and accounts for 1991, fell to 12.8 percent in 1992 but recovered to 16.3 over 40 percent of real GDP, largely trade and public-sec- percent in 1994. tor services. The industrial sector accounts for about 16 Exchange rate and trade reforms have been the cen- percent of GDP and employment; it is relatively diverse terpieces of Ghana's reform program. As a result, import and well developed by Sub-Saharan African standards. protection is low and relatively less dispersed, and based Although Ghana once enjoyed a relatively high living on two tax instruments: the import duty and the uniform standard compared with most other West African na- special tax. The government abolished the import licens- tions, poor economic policies and deteriorating external ing system in January 1989, and since then importers terms of trade in the 1970s led to substantial declines in submit only import declaration forms. In March 1992 the income in the 1970s and early 1980s. Between 1970 and auction market that had been set up to sell foreign currency 1982 import volumes fell by a third, real export earnings was replaced by the interbank foreign exchange market. by 52 percent, and domestic savings and investment Price and distribution controls were also dismantled. from 12 percent of GDP to almost insignificant levels. The cocoa sector is central to Ghana's economy both T-he return of over I million Ghanaians from Nigeria in for its contribution to export performance and tax reve- 1982/83 on top of a prolonged drought severely strained nues, and for its generation of rural income and employ- the food and employment situation. ment. The Economic Recovery Program aims to The government introduced its Economic Recovery increase competition, reduce transaction costs, and in- Program in 1983 to restore and sustain macroeconomic crease the share of the world price going to farmers. stability, maintain an incentive framework to enhance Overall progress has been slow but steady. The farmers' efficiency, encourage savings and investment, provide share of the export price increased from 25 percent in an enabling environment for the private sector, and the 1984/85 crop year to around 50 percent in 1993/94. improve the efficiency of public sector resource man- The Cocoa Board trimmed its operational expenses by agement. The program was supported by financial and retrenching about 30,000 workers. In the 1992/93 sea- technical assistance from the World Bank, the IMF, and son, the government introduced a new cocoa policy by other multilateral and bilateral donors. allowing private traders to compete with the Cocoa Real GDP growth averaged 5 percent a year (2 per- Board in domestic cocoa trading. Six companies were cent a year on a per capita basis) over the next decade, licensed to trade and purchased close to 20 percent of compared with negative growth recorded in the preced- the crop. The government has also recently agreed to ing decade. The benefits of growth have been widely study options for liberalizing cocoa exports. distributed. Farmers and rural workers have gained from Ghana's fiscal situation improved substantially under improved producer prices for cocoa and liberalization in the recovery program through better mobilization of trading of other cash crops. Real food prices for cereals revenue, tax reform, improved tax collection, and ration- and roots have fallen gradually. Government expendi- alization of consumption taxes and user charges. The 86 Ghana program also improved the eft'iciency of public resource GDP in 1992 to a deficit of 2.5 percent in 1993 and 1. I management, but much more remains to be done to percent in 1994. If excess divestiture receipts are in- ensure efficient expenditure management and project cluded, then fiscal balance was in surplus by 2.2 percent implementation. In budget formulation, recurrent ex- in 1994. Divestiture receipts, which exceeded original penditures were given higher priority in an effort to projections by 3.2 percent of GDP, also cushioned the restore the efficiency of the health and education serv- large shortfall in program aid. Money supply grew by ices. Public investment grew from negligible levels at around 42 percent in 1994. A lower real GDP growth for the beginning of the program to 9.9 percent of GDP in 1994 is now estimated at 3.8 percent instead of the 1993, emphasizing rehabilitation of the country's eco- originally projected 5 percent, largely because of un- nomic and social infrastructure. About 75 percent of the timely rains and ethnic conflict in the north. Inflation public investment program in 1993 was accounted for by rose to over 30 percent by the end of the year. investment in infrastructure, especially roads. To im- Macroeconomic stability is programmed to be re- prove investment allocations, sector ministries strength- stored over the course of 1995. At the core of the 1995 ened their planning units, and the Ministry of Finance budget are measures, including introduction of a value- and Economic Planning established a committee to en- added tax, designed to secure a fiscal surplus of 1.2 sure that investments meet established criteria and sup- percent of GDP. Credit policy aims at an 8 percent growth port sector strategies. within a three-year time horizon. in money supply, and the rate of inflation is targeted to The government has also undertaken wide-ranging slow down to 18 percent on an annual basis by the end financial reforms. It has abolished interest rate controls of the year. Real GDP growth is projected to be 5 percent, and sectoral credit ceilings. With the promulgation of a and the baiance-of-payments current account deficit (in- new banking law in 1989, an improved legal framework cluding official transfers) is expected to fall from 6 governing banking activities was introduced, including percent of GDP in 1994 to 3.4 percent in 1995. uniform accounting and auditing standards for all banks, Progress in the divestiture program was slow until and better supervision by the Bank of Ghana, and the 1993. As of the end of 1993 only 64 state-owned enter- finances and management of distressed banks have been prises had been privatized or liquidated, with another 196 restructured. The second stage ot' the financial adjust- with majority state ownership.Asignificant step forward ment program was to reduce government ownership in in the divestiture program took place with the sale of all state-controlled banks to a minority position of 40 government shares in Ashanti Goldfields and seven mi- percent. This program is now under implementation and nority-held companies in 1994. The government plans to the three largest banks -Ghana Commercial Bank, enhance the transparency of divestiture and contract pri- Social Security Bank, and National Investment Bank - vate firms to speed privatization All methods of sale are being prepared for divestiture by private interna- would seek a core private investor with a controlling tional financial advisers. This divestiture process will share and ensure that at least 51 percent of the shares of continue over the next ftew years. The main issue in the privatized firms are held by the private sector. financial sector is that its depth is very low. With com- petition, intermiediatioin should improve. A more com- Poverty and Social Indicators petitive financial system should also pursue deposit mobilization more vigorously. Ghana has a small stock Ghana's economic growth under the recovery program exchange listing 18 companies. With an ongoing dives- has produced major improvements in poverty trends. An titure program, it is anticipated that the stock exchange extended poverty study has shown that between 1988 will be a vehicle t'or share flotation, broadening the and 1992, the incidence of poverty dropped from just ownership of these companies among the Ghanaian under 36 percent to 31 percent. This is clearly a major public. The government's sale of siares in Ashanti Gold- achievement. Almost all of the improvement comes fields in 1994 provided a strong impetus to the stock from economic growth and the resultant increase in exchange, doubling its capitalization. average incomes and expenditures. Income distribution has remained relatively stable over the period. Other Recent Economic Developments indicators (such as the depth of poverty, the food expen- diture ratio, and school enrollments) also show marked After a decade of sustained adjustment, there remain improvement. The gains appear to have benefited most concerns about maintaining macroeconomic stability in regions, and especially rural areas. In the rural Savannah Ghana. Macroeconomic imbalances re-emerged in late region, for example, the incidence of poverty fell from 1992 when civil servants obtained large wage increases 50 percent in 1988 to 39 percent in 1992. Even urban shortly before the elections. Strong corrective measures areas other than Accra have benefited from the eco- were adopted in the 1993 and 1994 budgets, and the nomic recovery. It appears that the reduction in poverty narrow budget moved from a deficit of 4.8 percent of that has occurred in rural areas may be due to increased 87 Ghana reliance on off-farm income. The gender incidence of regulations and a new Investment Act has been passed, poverty also seems to have improved. Poverty in Accra its continuing ownership of a wide range of productive has, however, increased markedly (from just 7 percent activities and of most of the commercial banks has given in 1988 to 21 percent in 1992). conflicting signals to the private sector. However, the Poverty is still predominantly a rural phenomenon, government's recent effort to improve its image through and rural areas account for more than 70 percent of a number of initiatives, including a very constructive national poverty. The northern Savannah region is sig- dialogue with the private sector, is clearly making a sea nificantly poorer than the national average. The North- change. A challenge now facing the government is to ern, Upper East, and Upper West regions are the poorest nurture Ghana's emerging positive image in the business regions, followed by the Volta region. Despite increas- community and to draw wider investment - beyond the ing poverty, the Greater Accra region is the least poor in mining sector and the Ghana Stock Exchange companies the country. The majority of the poor are food crop and - from foreign and domestic sources. One of the gov- export crop farmers with average per capita income ernment's objectives for achieving rapid export growth below 128,404 cedis, or one-third of the national aver- is to promote nontraditional exports, increasing their age. Informal sector wage employees have gained most contribution from 7 to 15 percent of exports by 2000, from the economic recovery, but export crop and food and the Export Promotion Council has begun a medium- crop farmers in spite of their relative poverty have also term plan for nontraditional exports. seen an improvement in welfare in recent years. The A lack of adequate human and institutional capacity Participatory Poverty Assessment done in conjunction and inefficient utilization of existing capacity are major with the extended survey suggests that living standards bottlenecks to Ghana's development efforts. Although among Ghana's poorest groups remain seriously low. the government responded to these capacity constraints The incidence of government expenditures suggests that over the first decade of reforms. Ghana continues to face the poor gain very little from social spending. The esti- serious human resource problems. The government es- mates show that targeting has not improved. In short, tablished a National Capacity Building Steering Coni- while the poverty study suggests that the poor did bene- mittee in 1993 to prepare for a sensitizing and fit from the economic recovery in Ghana, it counsels consensus-formulating national workshop. The work- caution about their participation in future growth with- shop established a plan of action to improve public sector out increased investment in human capital. policy and management, and the policy environment for Since the 1992 election-related fiscal shock, Ghana's the private sector, including general education, voca- macroeconomic performance has been an issue. Though tional training, and management training of business the government has made considerable progress in re- people. The president recently launched a National Insti- storing fiscal balance and reducing the external deficit. tutional Renewal Program aimed at achieving, among inflation remains relatively high. The corrective meas- other things, a leaner and more effective public service. ures announced in the 1995 budget. and the value- added tax being introduced, are likely to restore Environment macroeconomic balance in 1995. There is a consider- able need for balance-of-payment financing over the The major environmental issues in Ghana are soil deg- 1996-98 period. In addition, given the size of the wage radation, deforestation, and the health impact of mining bill and lower divestiture receipts, there remains a threat activities, water contamination, and inadequate sanita- of macroeconomic instability from another public-serv- tion. In the 1980s, 25,000 hectares of forest were lost ice wage shock, and restructuring and downsizing the each year, and indications are that the rate is accelerat- public service are critical for sustained macroeconomic ing. In rural areas, less than 40 percent of the population stability. Accelerated growth can only be achieved after has access to safe drinking water and only 15 percent macroeconomic stability becomes a reality and domes- have adequate sanitation. The discharge of heavy metals tic savings and investment begin to rise. and cyanide in mineral-producing areas is polluting Recent developments in the government's approach water with a potentially serious imnpact on human health. to the private sector have been very positive. After exhibiting an upward trend in the period 1983-91, pri- External Debt vate investment fell in 1992 fell to potential macroe- conomic uncertainty and fell again in 1993. Private Ghana has not rescheduled its debt service obligations sector investment in 1993 was only 4.9 percent of GDP, since the start of the economic recovery program. Its total down from 9.3 percent in 1991. In 1994 it is estimated debt outstanding and disbursed (including IMF debt) as not to have increased. These weak investment results of December 31, 1993, was $4.9 billion, close to 81 were due mostly to macroeconomic instability. While percent of GDP. Both the current and the projected ratios the government has repealed most of the old controls and are well within the satisfactory range of debt ratios. 88 Ghana Population mid-1993 (millions) 16.4 Income group: Low GNP per capita 1993 (US$) 430 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%) Gross domestic investment/GDP 9.6 14.5 12.8 14.8 16.3 20 - Exports of goods and nfs/GDP 9.7 16.0 16.0 19.7 25.2 Gross domestic savings/GDP 7.6 6.0 2.0 -1.4 3.5 Gross national savings/GOP 6.5 7.4 4.2 1.2 6.6 1 Current account balance/GDP -5.4 -6.9 -8.6 -13.6 -6.6 1 I I I Interest payments/GOP 0.7 0.9 1.1 1.2 1.0 Total debt/GDP 49.7 61.0 62.6 75.4 59.5 o Total debt/exports 330.9 383.8 381.7 375.2 342.6 88 89 so a1 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (o) (% of GDP) Agrculture 44.9 47.9 48.6 47.6 45.5 I r Industry 16.7 15.9 16.2 16.1 15.7 Manufacturing 11.5 9.2 8.7 8.5 8.1 Services 38.4 36.3 35.3 36.4 38.8 1985-90 1990-94 1992 1993 1994 50 (average annual growth) Agnculture 2.1 1.8 -0.6 2.8 1.0 Industry 7.1 4.3 5.7 4.3 2.8 Manufacturing 6.1 2.0 2.7 2.2 1.5 Services 7.9 7.3 8.1 7.3 6.8 0 o 88 8a 0o 91 92 93 94 GDP 4.8 4.3 3.6 4.8 3.6 |Agriculture imIndustry [IServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 199 Growth rates of GDI and GDP (%) Pnvate consumption 83.0 85.6 87.6 89.7 84.8 2s General govemment consumption 9.4 8.4 10.3 11.7 11.7 Gross domestic investment 9.6 14.5 12.8 14.8 16.3 20 Exports of goods and nfs 9.7 16.0 16.0 19.7 25.2 is Imports of goods and nfs 11.6 24.4 26.8 35.9 38.0 1985-90 1990-94 1992 1993 1994 (average annual growth) | Prvate consumption 3.9 0.8 0.9 1.9 -3.0 General govemment consumption 1.6 16.1 24.8 19.1 6.0 | Gross domestic investment 12.2 11.8 4.1 14.2 13.9 8|9 9 91 92 93 94 Exports of goods and nfs 10.4 7.7 1.8 17.0 1.2 5t Imports of goods and nfs 8.8 6.6 1.7 19.0 -7.2 Gross national product 4.8 4.3 3.9 4.7 3 14 01° Gross national income 3.4 3.6 2.1 2.6 5.4 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 40 (% change) 35 Consumer prices 10.3 37.3 10.1 25.0 30 Wholesale prices 539 22.7 .. 2. Implicit GDP deflator 20.7 39.1 12.8 25.2 26.8 |s 10 Government finance 5 (% of GDP) o Current budget balance 0.1 1.6 -2.2 -0.9 4.7 89 0o 91 92 93 94 Overall surplus/deficit -4.8 -10.7 -10.8 -6.8 -GDP def. --CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 89 Ghana POVERTY and SOCIAL 1985-90 1990-94 Delopmentdlamond (annuai growth rates) Pooulation 3.1 3.0 Lifeexpectancy Labor force 2.7 2.9 [ most recent estimate Poverty level: headcount index (% of population) 35.9 GNP Gross Life expectancy at birth 56.4 per pfimary Infant mortality (per 1,000 live births) 79.4 capita enrollment Child malnutrition (% of children under 5) 35.5 Access to safe water (% of population) 55.7 Energy consumption per capita (kg oil equivalent) 96.1 I Illiteracy (% of population age 15+) 39.7 Access to safe water Gross primary enrollment (% of school-age population) 74.0 TRADE (millions US$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 632 897 986 1,052 1,215 2.000 - Cocoa 412 361 329 280 305 1,800 Timber 28 119 123 143 166 1.0C Manufactures .. . . . . 1.400k Total impons (cit) 729 1,290 1,589 1,885 1,771 1t200 Food 40 38 36 41 42 ',000 r Fuel and energy 200 204 181 171 175 800 Capital goads 185 494 699 1.038 9169 SW0 Import price index (1987=100) 95 111 113 118 120 0. Terms of trade (1987=100) 88 75 74 64 72 es 89 90 91 92 93 94 Openness of economy (Irade/GDP,%) 21 40 43 56 63 oExports tlmports BALANCEotPAYMENTS 1985 1990 199 1993 1994 ____ (millions US$) | Current account balance to GDP ratio (%) Exports of goods and nts 670 982 1,104 1,197 1,364 0 ° I 1 1 Imports of goods and nis 836 1.505 1,844 2,163 2,058 2 89 89 190 191, 92 931 94 Resource balance -166 -523 -740 -986 -694 Net factor income -111 -111 -106 -102 -102 4 Net current transfers 33 202 255 261 271 | L Current account balance Before official transfers -244 -432 -592 -828 -525 t Afterofficial transfers -134 -218 -376 -572 -325 -10 Long-term capital inflow 127 309 409 395 325 12 Total other items (net) 67 27 -157 218 181 12 Changes in net reserves -60 -118 124 -41 -181 14 Anmo: Reserves excluding gold (mill US$) 479 219 320 410 Reserves including gold (mill. USS) 552 309 412 517 Conversion rate (locak/US$) 76.2 326.3 437.1 649.1 647.9 EXTERNAL DEBT 1965 1990 1992 1993 1994 Structure of external debt (%) Export ratios Long-term debt/exports 199.1 276.2 279.6 276.1 261.6 100 - IMF credit/exports 103.6 75.2 65.5 60.3 48.9 Short-term debt/exports 28.1 32.4 36.6 38.8 32.1 Total debt service/exports 23.4 35.9 26.6 22.7 23.2 75 OPNG GOP ratios m rvt Long-term debVGDP 29.9 43.9 45.9 55.5 45.4 30ff. IMF credit/GDP 15.6 12.0 10.7 12.1 8 5 Short-term debt/GDP 4.2 5.1 6.0 7.8 5.6 25_ Long-term debt ratios Prvate nonguaranteedAlong-term 3.0 1.2 1.1 1.1 0.9 Public and publicly guaranteed Pnvate creditors/long-term 12.1 6.8 6.3 5.0 4.2 188 89 90 91 92 93 94 Official creditorsAong-term 85.0 92.0 92.6 93.9 94.9 The development diamond shows four key indicators of development in the counlry (in bold) compared with its income-group average, If data are missing, the diamond will be incomplete. 90 Guinea G uinea is richly endowed with agricultural, min- sidies to public companies expanded. As a result, the eral, and energy resources but is one of Africa's government was increasingly unable to provide services poorer countries, with a per capita income esti- in health and education and the country's infrastructure mated at $500 in 1993. About a quarter of the deteriorated. External imbalances became unsustain- children born die before the age of five, and average life able, chiefly as a result of poorly conceived investments expectancy barely reaches 40 years. Only 39 percent of that failed to generate returns adequate to service the school-age children have access to primary education, associated external debt. Mounting debt service obliga- and 76 percent of the adult population is illiterate. An tionsandprivatecapitalflightresultedinacontinualrise estimated 50 percent of Conakry's population lives in in foreign liabilities of the central bank and a massive poverty. accumulation of payments arrears, amounting to over In September 1958 Guinea became the first inde- $300 million at end-1985. pendent nation of former French West Africa. Shortly thereafter economic policy shifted toward state-led de- velopment with the objective of modernizing and indus- trializing the country. Increasingly, private-sector The Military Committee for National Recovery, which activities were forced underground as an overstaffed took power in April 1984, initiated a dramatic change in public administration absorbed most of the surplus gen- Guinea's political and economic policies. In an effort to erated by the mining companies and impeded the devel- reverse the deterioration of the economy and redress opment of private initiatives. The once dynamic financial imbalances, the new leaders embarked in late agricultural sector returned to subsistence production, 1985 on a series of ambitious economic and financial and Guinea transformed itself from a major exporter of reforms to establish a market-oriented economic system, agricultural products into a major bauxite exporter and supported by IDA, the IMF, and bilateral donors. The a net food importer. government moved to correct the serious overvaluation The state-led development approach failed, and mod- of the currency by an initial fifteen-fold devaluation. It ernization and industrialization were never achieved. also took steps to decontrol prices and liberalize internal Economic growth remained below the 2.8 percent yearly and external trade, and introduced institutional reforms estimated demographic growth rate. The economy be- to promote private savings and investment. The meas- came increasingly dualistic: the official sector depended ures reoriented public investment toward infrastructure on bauxite exports for its income and functioned through for the productive sectors, privatized commercial and an extensive system of administered prices linked to a industrial activities, replaced defunct state banks by highly overvalued currency, while the gradually expand- privately owned banks, and reduced the size of the civil ing informal sector obtained its foreign exchange service. These initial reforms yielded encouraging re- through clandestine exports and private transfers from sults. The economy grew at 4.5 percent in real terms abroad. By the early 1980s the informal sector satisfied between 1986 and 1989, almost2percentayearonaper about 80 percent of urban consumer demand and virtu- capitabasis.Theeconomyadjustedquicklytotheeffects ally all demand for marketed consumer goods outside of devaluation, and inflation declined from 72 percent Conakry. Urbanization accelerated as productive activi- in 1986 to 28 percent in 1989. However, the response ties and incomes were increasingly shifted from the rural from modern sector investors was disappointing, for to the urban sector. growth was concentrated in smallholder farming, small- The government's financial position deteriorated se- scale enterprises, and the services sector. verely mainly because of the poor performance of the During the second phase of adjustment, begun in state enterprise sector. Tax receipts and transfers from 1988, progress was slower, partly because government state-owned enterprises declined as parallel markets needed to do more than simply dismantle inappropriate grew to dominate consumer trade, while budgetary sub- policies and practices. New reform policies and institu- 91 Guitnea tions capable of sustaining the market-oriented econ- ments, which fell from 17.5 percent of total programmed omy wererequired,andtheirdesignandimplementation amounts in 1993 to 16.4 percent in 1994. Under these was more difficult. Resistance was encountered in fur- difficult circumstances, Guinean authorities have by and ther restructuring public enterprises, and the pace of large maintained the share of funds allocated to the privatization slowed. The civil service reform proved to social sectors. be difficult to implement. particularly the establishment As private investors worried by increased political of a mechanism to monitor and control personnel rolls uncertainty did not increase their share of investments and the wage bill and the set-up of permanent appropri- in GDP, economic growth weakened from an average of ate management procedures. 4 percent per year in the second half of the 1980s to 2.4 The second phase of the economic reform program percent in 1991.and 3.0 percent in 1992, before increas- was also accompanied by political reforms as progress ing again to 4.7 percent in 1993 and an estimated 4 was made toward greater democracy. Since the promul- percent in 1994. Improved control over the budgetary gation of a constitution in 1991 the press has been freed deficit and monetary policy implementation helped re- and political parties areallowed. Strikes and demonstra- duce the inflation rate from 19.4 percent in 1990 to 7.1 tions are no longer prohibited. Free municipal elections percent in 1993 and an estimated 4.1 percent in 1994. took place in 1992. In December 1993 a president was contributing to a stabilization of the exchange rate. elected in Guinea's tirst multiparty presidential elec- Progress toward closing the current account deficit tions; the vote indicated the existence of an active oppo- has been impaired by the drop in export revenues caused sition albeit very much along ethnic lines. Legislative by a fall in the price of bauxite: the current account elections are scheduled in June 1995. These positive deficit (excluding public transfers) worsened from 8.9 political developments have, however, introduced percent of GDP in 1989 to 12.3 percent in 1992 before greater uncertainty into the conduct of economic policy falling to 10.7 percent in 1993. Built-in lags in the price and hindered the pace of reforms. adjustment formula for bauxite initially cushioned the Guinea has made progress in disengaging the state impact of the fall in the price of aluminum but will delay from a direct role in managing public enterprises. The the positive effect of the recent strengthening in the public monopoly for petroleum product imports and aluminum market. commercialization has been eliminated, and private dis- tributors are operating in the country. The status of a Poverty and Social Indicators number of public agencies has been changed to trans- form them into autonomous public enterprises as a first One ol the major constraints to economic growth in step toward privatization. In the key water and electric- Guinea is its weak human resource base. Lack of access ity utilities sector, management of production, distribu- to basic social services is reflected in low literacy rates, tion, and fee collection has been granted to private and high morbidity and mnortality levels. These issues operators under performance-based contracts. Half the are particularly acute for women and children. Govern- shares of the publicly owned telephone company have ment policies under the current reforn program aim at been offered for sale, and the government is actively adjustment with social equity. Policy changes during the considering reducing its participation in the capital of first phase of the adjustment process have shifted the existing and future mining companies. terms of trade in favor of rural producers, the poorest Nonmining revenues grew from 4.6 percent of GDP segmenlt of the population. With a view to cushioning in 1988 to an estimated 7.4 percent in 1994. However, the adverse effects of adjustment on vulnerable groups this improvement was not sufficient to compensate for in urban areas, the government adopted a number of a decrease in mining revenues due to the large fall in the transitional measures during the first phase of the adjust- price of aluminum after 1990. which led to a 19.7 ment program. Authorities are currently taking steps to percent drop in mining sector export receipts in 1992 reorient budget and staff resources in the health and and, after a year of stabilization in 1993. an estimated education sectors toward primary health care and edu- further drop of 13.3 percent in 1994. As a result, total cation. These improvements in efficiency in the use of government revenues fell from 14.4 percent of GDP in resources and larger budgetary allocations have resulted 1988 to an estimated 10.4 percent in 1994. Under these in imnprovements in social indicators, particularly in conditions, fiscal balance could only be achieved gross enrollment rates. However, sustained progress is through drastic cuts in expenditures: current expendi- hindered by the weak mobilization of fiscal revenues. tures fell from 13.5 percent of GDP in 1988 to 9.4 percent in 1994, while capital expenditures decreased from 10.9 percent of GDP to 8.1 percent. The fiscal Medium-Term Prospects difficulties are straining the capacity of the state to The economic outlook for Guinea continues to be highly increase the domestic financing share of public invest- volatile as the economy continues to be heavily depend- 92 Guinea ent on one commodity, bauxite. The economic diversi- The bauxite and alumina sectors continue to account fication and the acceleration of growth necessary to alter for close to 80 percent of Guinea's merchandise export its poverty profile significantly can only be achieved receipts and 29 percent of the government's fiscal re- through sustained economic management reforms. At ceipts in 1994, down from an average of 70 percent over the core of this adjustment effort are improvements in 1987-90. Despite a relatively good performance of non- revenue mobilization and management of public re- mining exports over 1990-94, the current account bal- sources. The achievement of the fundamental redefini- ance (excluding official grants) worsened in 1992 to tion of the role of the state, which was started in 1985, 12.3 percent of GDP before lower capital imports by will require significant qualitative and quantitative mining companies helped improve it to 10.7 percent in changes in the civil service to allow an active partner- 1993 and an estimated 9.4 percent in 1994. While baux- ship in promoting private sector activity. ite and alumina production and exports are expected to The expected increase in private investment resulting remain stable on er the next several years, considerable from these policies, along with enhanced efficiency in growth can be expected in the volume of other exports, public investment, should result in real annual growth notably agricultural products and gold and diamonds if averaging about 4 to 5 percent beginning in 1995, lead- the economic reform program is sustained. ing to 2 percent yearly increases in per capita income. The revitalization of the agricultural sector over the last External Debt few years is expected to be sustained through a gradual shift toward the export market. Output growth in the External debt atend-1994 was equivalentto 84.7 percent industrial sector should average 3 to 4 percent annually, of GDP and consisted almost entirely of public debt. with continuing growth in small-enterprise activities, Relations with most creditors are considered good, al- the expansion of mining activity outside the bauxite though an unresolved problem remains with Russia subsectors, such as diamonds and gold, rehabilitation of about the valuation of the debt denominated in rubles viable industrial enterprises, and increased construction contracted under the First Republic. Debt service was activity. These developments, combined with reforms equivalent to 18 percent of export earnings in 1994. In aimed at eliminating remaining constraints - particu- January 1995, Guinea reached an agreement with the larly in transport - should help sustain the fast growth Paris Club for a rescheduling of arrears accumulated in the tertiary sector. until the end of 1994. 93 Guinea Population mid-1993 (millions) 6.3 Income group: Low GNP per capita 1993 (US$) 500 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Invetment to GOP ratio () Gross domestic investmenVGDP 17.5 16.5 16.1 16.7 20 T Exports of goods and nfs/GDP 29.9 23.0 20.6 19.7 Gross domestic savings/GDP .. 16.8 100 9.0 9.3 Gross national savings/GDP .. 7.8 3.0 6.4 1 Current account balance/GDP -6.5 -9.3 -8.8 -7.2 tnterest paynments/GDP .. 1.9 1.1 1.2 17 Total debtVGDP .. 87.6 89.3 90.3 86.5 o Total dent/exports .. 292.2 387.6 435.3 421.5 as 89 90 s 9 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shrse ot GDP by s.ctor (#) (% of GDP) Agriculture . 33.6 23.8 23.9 22.3 190 . Industry .. 34.2 31.6 31.1 28.5 Manufacturing 3.5 4.5 4.6 4.3 Services .. 32.2 44.6 44.9 49.3 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 2.2 4.5 4.7 5.0 5.1 Industry 5.3 2.9 2.6 3.1 3.1 Manufacturing 5.6 4.0 3.8 5.0 .1 ol Services 4.8 3.8 2.6 5.3 5.1 0 so 91 92 93 94 GDP 4.1 3.7 3.3 4.5 4.5 1 *Agriculture sinoustry OServices GDP: EXPENDITURE 1985 1990 1992 1993 1994 Growthratsof GDlIndGDPI%) (%/ of GOP) Pnvate consumption . 71.3 79.3 83.8 81.3 20 General govemment consumption .. 11.9 10.7 7.3 9.4 Gross domestic investment .. 17.5 16.5 16.1 16.7 iS Exports of goods and nfs .. 29.9 23.0 20.6 19.7 Imports of goods and nfs .. 30.6 29.5 27.7 27.1 10 1985-90 1990-94 1992 1993 1994 / (average annual growth) Pnvate consumption 3.5 5.2 3.7 8.8 2.3 | O General govemment consumption -0.6 -1.4 18.9 -35.4 36.4 9 9 91 / 92 93 94 Gross domestic investment 8.5 5.2 8.2 7.5 10.9 s\ Exports of goods and nfs 5.7 1.1 -7.2 9.2 2.4 Imports of goods and nfs 5.1 4.1 1.2 6.2 8.1 Gross national product 4.0 4.7 4.2 5.9 4.3 1 Gross national income 2.9 3.3 2.1 3.7 5.3 -GoI -GOP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 |Chnge of GDPdefltorandCPII%) Domestic prices 25 (% change) 20 Consumer prices . .. .. .. .. Wholesale prices .. Implicit GDP deflator 24.0 15.6 8.1 8.0 1t Govemment finance I I (% of GDP) Current budget balance . 3.4 2.2 5.7 2.8 so9 90 I 92 93 94 Overall surplus/deficit . 98.6 66.7 -3.8 -6.1 -GDP det. -Ml-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other Ihan those specified. 94 Guinea POVERTY and SOCIAL (annual growthrates) 1985-90 1990-94 |Development dlamond' (annual growth rates) Population 2.9 3.0 Life expectancy Labor force 1.7 1.8 | most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 44.9 per pnmary Infant mortality (per 1,000 live births) 132.0 capita enrollment Child malnutrition (% of children under 5) 18.0 Access to safe water (% of population) 60.0 Energy consumption per capita (kg oil equivalent) 65.7 1 Illiteracy (% of population age 15+) 76.0 Access to safe water Gross primary enrollment (% of school-age population) 42.0 __. TRADE (millions UJ$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (lob) .. 789 621 614 662 so Other metals .. 447 343 332 350 am - Aluminum 166 107 106 105 7 00 Manufactures .. .. .. .. a- m lii Total imports (cif) . . 730 813 SW ii; Food . .. 54 42 400 i Fuel and energy 72 57 '_ Capital goods . .. 110 198 2M Export price index (1987=100) . .. . * 10D Import price index (1987=100) 10 Terms of trade (1987=100) .. .. .. . .90 rs s 91 92 93 94 Openness of economy (trade/GDP,%) .. 61 53 48 47 0 Exports tn Imports BALANCE of PAYMENTS (millions USS) 195 1990 m 1993 1994 Current account balance to GDP ratio(%) Exportsof goodsand nfs .. 842 684 655 705 0 ° - i Imports of goods and nfs .. 758 752 879 968 -1l 88 89 90 91 92 93 94 Resource balance * 85 -68 -224 -264 |2 Net factor income -228 -146 -90 -103 |3 Net current transfers .. -40 -64 35 113 4- Current account balance 5t Before official transfers .. -184 -278 -279 -253 4t After official transfers .. -83 -144 -279 -253 |7 Long-terrn capital inflow .. -73 239 26 48 8 Total other items (net) .. 118 -63 302 201 -I Changes in net reserves -2 38 -32 -49 4 .10 Aemo: Reserves excluding gold (mill. US$) .. .. 87 132 Reserves Including gold (mill. US$) .. .. 87 132 . Conversion rate (localWUS$) 24.3 660.2 902.0 955.5 976.7 EXTERNAL DEBT Exrport ratios 1985 1990 1992 1993 1994 Structure of extrnel debt (%) Long-term dlebtVexports .. 265.5 360.5 406.6 396.6 1IO I°I | IMF credit/exports .. 6.1 9.3 9.2 15.9 Short-term debt/exports .. 20.6 17.8 19.5 9.0 Total debt service/exports .. 19.9 12.4 12.7 18.0 75 OPNG GOP ratios n Prvt. Long-term debt/GDP 79.6 83.1 84.4 81.4 so : tOt. IMF credit/GDP .. 1.8 2.1 1.9 3.3 Short-term debt/GDP .. 6.2 4.1 4.0 1.9 25 - Long-term debt ratios Private nonguaranteedAlong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0o Private creditorsAlong-term 15.8 4.8 4.2 3.9 3.2 1 s90 go 92 93 94 Official creditorsmlong-term 84.2 95.2 95.8 96.1 96.8 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 95 Guinea-Bissau G uinea-Bissau is a small country on the West Structural Adjustment Program African coast with about I million inhabi- tants. With an estimated 1993 per capita In 1983 the government broke with the policies of the income of about $240, it is among the poorest postindependence decade and initiated an economic re- in the world. Annual population growth is about 2.0 covery program supported by IDA and the IMF. Despite percent, and the economy is characterized by a large some initial success, however, the program lost momen- traditional rural sector, producing primarily for sub- tum in 1985, largely because of the government's inabil- sistence. Agriculture, fisheries, and forestry account ity to control the fiscal deficit and credit expansion. In for about 90 percent of employment and almost 45 1987 the government renewed efforts to revitalize the percent of GDP. While urban informal activity is deteriorating economy and launched a far-reaching strong, it has not been captured in statistics. Marketed structural adjustment program designed to maintain fis- output is largely confined to export crops, primarily cal and monetary discipline, achieve positive real inter- cashews, grourdnuts, palm kernels, and wood; in est rates, liberalize prices, remove trade distortions, 1993 cashews, groundnuts, and fish accounted for reduce export taxes, improve public resource manage- about 87 percent of total exports of goods. Rice is the ment, promote public sector reform, and move toward a main food crop. In the 1950s Guinea-Bissau was a net flexible and market-oriented exchange rate. exporter of rice (around 40,000 tons annually); how- After a promising start, macroeconomic performance ever, since 1962 it has been a net importer. Although over 1989-93 was mixed. Some progress was made in local production has increased, rice imports still re- 1990 in controlling the fiscal deficit, but in 1991 there main high. As of late 1994, Guinea-Bissau has, for the were revenue shortfalls and large expenditure overruns. first time since independence, a democratically The adverse trends continued in the first half of 1992, elected government. but expenditure cutbacks introduced in the second half In 1974 Guinea-Bissau faced the task of rebuilding of the year helped to reduce the fiscal imbalance. Mone- its economy after a protracted liberation war dislocated tary and credit policies were also expansionary through- about a fifth of the population, destroyed an important out 1991 and much of 1992. The result was that after part of the economic intrastructure. and reduced output declining in 1990, the inflation rate increased through- of the main crops by over one-third. An ambitious public out 1991, reaching an annual rate of 70 percent in 1992. investment program financed mainly by external bor- Beginning in November 1992, the government, which rowing focused on the manufacturing sector and ne- had been using the Portuguese escudo to anchor the its glected agriculture. Inappropriate pricing policies, an currency, began to use the dollar as the standard; this increasingly overvalued exchange rate, and an ineffi- remains the currency against which the crawling peg is cient marketing system prevented recoverv of agricul- anchored. tural production, depressed oft'icial exports. and Since late 1992 the authorities have shown a strength- stimulated the parallel market. Severe fiscal imbalances ened commitment to redress the country's declining resulting from a rapid rise in government expenditures economic and financial situation. In late February 1993 and limited growth in revenues were increasingly fi- the authorities agreed with the IMF on a demanding nanced by central bank credit, fueling inflation. Over shadow program whose overall aim was to boost budg- 1980-82, the external situation was further agoravated etary revenues while cutting current outlays. Estimates by exogenous factors such as drought and depressed for 1993 indicate that even though some of the targets world market prices for the country's main exports. The were not fully met, actions taken over the year have balance ot' payments deteriorated rapidly, exacerbated started to show results. From 1992 to 1993, the annual by external debt service payments and accumulated ex- average rate of inflation was reduced from 70 to 48 ternal arrears. percent. and the overall fiscal deficit (excluding grants) 96 Guinea-Bissau came down from 38 to 28 percent of GDP. Meanwhile, Progress on privatization and rehabilitation has been the government managed the exchange rate flexibly, uneven. At the beginning of the adjustment program, the which allowed the spread between the official and par- public enterprise sector comprised 39 enterprises, gen- allel market rates to be reduced from 5 percent at end- erating about9 percent of GDP. The electricity and water 1992 to 3.7 percent at end- 1993. Real GDP growth rate utility is now operated under a management contract, for 1993 reached about 2.7 percent. and one of the two previously government-owned hotels Preliminary indications show that in 1994 there was has been privatized and the other put under private a further moderation in the annual average rate of infla- management. Four manufacturing and commerce enter- tion to about 15 percent against a programmed target of prises have been privatized and two leased to private 17 percent. The primary fiscal surplus is estimated to entrepreneurs; and two tourist resorts put under private have been lower than programmed, representing about management. Following the decision to liberalize im- 1.6 percent of GDP against a target of 5.5 percent. Lower ports of petroleum products, the authorities are commit- than projected capital expenditures, helped to reduce the ted to liquidating the state-owned petroleum importing overall fiscal deficit (excluding grants) to about 23.6 and distribution company, and the port authority and the percent of GDP, about 1.3 percentage points higher than telecommunications company have been privatized. A programmed. The shortfall in reaching the agreed fiscal technical unit to coordinate the reform has been estab- targets was mostly due to the fact that revenues from lished to ensure a transparent and objective process. selling fishing licenses were 34 percent lower than pro- At the start of the program, Guinea-Bissau's only jected and current spending was about 19 percent higher bank performed the functions of central, commercial, than programmed. and development banking. During most of the 1987-92 During the period 1987-93 Guinea-Bissau evolved period a combination of lax credit policies and negative from a rigidly controlled central command economy real interest rates resulted in a credit explosion to the into a largely free market economy. The price and ex- private sector and public enterprises. In March 1990 the change rate system has been liberalized. The public central bank was established as the monetary authority. sector, which had been overextended and highly ineffi- Since then, two commercial banks have been created. To cient, has undergone major transformations, although reverse the deterioration of the monetary situation, the progress has been slower than initially anticipated. Key monetary authorities limited the growth of broad money, enterprises have been privatized and others rehabili- which slowed to 40 percent in 1993, from Il1 in 1992, tated, some of which are now under private manage- with the help of a boost in interest rates to positive real ment. The civil service was scaled back by about 2.5 levels. In view of the rapid deceleration in inflation percent in fiscal 1993 through a voluntary departure during 1994, the nominal interest rate structure was scheme. The financial sector has emerged from being adjusted downward, but was still kept positive in real dominated by a single state-owned bank, which per- terms. Monetary developments in 1994 were less than formed central and commercial bank functions, to hav- satisfactory, given 49.5 percent broad money growth, ing a central bank and two competing banks - one the well above the programmed 21.5, due to a significant branch of a private foreign bank and the other a privately increase in credit to the economy, particularly toward administered joint venture between local and foreign the end of the year. The central bank has decided not to private investors and the government. grant any more guarantees on behalf of the private sector Trade distortions have been virtually eliminated. and has discontinued the practice of obtaining loans on Export taxes have been reduced. The liberalization of behalf of the government. prices has been one of the most successful areas of the The adjustment program has led to profound changes program. Prices have been liberalized, with the excep- in the economy and had a strong positive impact. GDP tion of petroleum products and public utilities, which grew steadily in real terms at an annual average rate of are adjusted regularly to reflect changes in costs. about 4.5 percent between 1987 and 1993. In 1994 real During 1994 progress on the structural front fell short economic growth was higher than expected, with pre- of expectations, especially in the areas of tax and liminary estimates pointing to a rate higher than 6 per- public enterprise reforms. Nevertheless, the govern- cent. Private-sector investment has been growing since ment has implemented some important measures. The the reform program was launched, albeit from a very civil service was retrenched by a further 5 percent. small base. Domestic savings, however, continue to be The port service charge on imports of rice was in- negative. creased by 10 percent to enhance budgetary revenues, The current account deficit, excluding official trans- and export taxes were further reduced. Liquidation of fers, widened from 26 percent of GDP in 1990 to about the state petroleum distribution company has been 48 percent in 1992, falling back to 28 percent in 1993, initiated. despite a downturn in the terms of trade, as imports were 97 Guinea-Bissau compressed sharply. In 1994 a good cashew harvest plus allow them to be reduced to about 21 percent of GDP in a significant reduction of excessively high stocks al- coming years, so that expenditures can be reoriented lowed Guinea-Bissau to reach record exports. Exports toward human capital and infrastructure development. of about $33 million, almost 23 percent higher than Expanding rural extension services and applied re- projected, combined with imports about 20 percent search, providing better primary education and health lower than programmed, reduced the current account care services, improving infrastructure, ensuring reli- deficit, excluding official transfers. to an estimated 19.5 able energy supplies, and establishing an enabling envi- percent of GDP, about 8 percentage points below the ronment for private sector development will be programmed target. The current account deficit has been priorities. financed by higher than projected grants, slightly lower Private investments are expected to play an increas- than programmed concessional loans, and an accumula- ingly larger role in the development process. The gov- tion of debt-service arrears. ernment is committed to addressing the needs of the most vulnerable groups by giving priority to employ- Medium-Term Prospects ment creation, improving the quality of social services and providing some direct safety nets. Nevertheless, The recently elected government reaffirmed its commit- given the starting point and the price prospects for ment to the 1994-97 reform program emphasizing re- exports, the Guinea-Bissau will continue to be one of strictive fiscal and monetary policies, coupled with bold the poorest countries in the world well into the next structural measures so that Guinea-Bissau can achieve century. sustained, broad-based, and private-sector-led growth. Agriculture will continue to be the main engine of External Debt growth, given the potential for increasing production, processing, and marketing of rice and other cereal Guinea-Bissau's debt is extremely high. At end-1993 its grains, cashews, fruits, vegetables, and forestry re- debt service ratio was about 194 percent, while medium- sources. Barring unexpected exogenous shocks, this and long-term external public debt remained in excess sector is expected to grow at about 6 percent a year over of 260 percent of GDP. The government obtained debt the next five years. Fisheries, commerce, and services relief from Paris Club members in 1987 and 1989. represent additional potential sources of growth. Do- However, as postrescheduling debt service remained mestic resource mobilization will be strengthened and high, new arrears have accumulated, and a Paris Club public enterprise reforms stepped up. Increased effi- meeting in February 1995 granted "Naples" terms to ciency in government development expenditures will handle the unusually large debt service. 98 Guinea-Bissau Population mid-1993 (millions) 1.0 Income group: Low GNP per capita 1993 (US$) 240 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratic( Gross domestic investmentlGDP 40.8 24.5 30.3 25.6 19.7 40 Exports ot goods and nfs/GDP 8.9 11.0 8.1 10.6 18.7 Gross domestic savings/GDP -2.9 -6.6 -18.0 -0.3 1.9 30 Gross national savings/GDP -3.9 -1.0 -18.1 0.2 3.1 2 Current account balance/GDP -44.5 -25.6 -48.5 -25.4 -16.6 Interest payments/GDP 1I4 1.4 1.3 0.8 0.8 Total debYODP 193.4 256.1 296.6 286.5 314.6 o Total debtexports 1,517.4 1,235.5 2,087.7 1,895.1 1,378.3 Di 92 GDP: PRODUCTION (%. of GDP) 1985 1990 1992 1993 19 Shar of GDP by ector I%) Agriculture 42.4 44.0 43.8 44.8 45.0 nr m Industry 14.3 18.0 19.1 19.0 18.5 Manufacturing .. 8.1 8.4 8.0 7.5 Services 43.3 38.0 37.1 36.2 36.5 1985-90 1990-94 1992 1993 194 so (average annual growth) Agriculture 7.3 4.7 3.6 5.3 7.3 Industry -5.1 2.3 5.2 1.3 1.9 Manufacturing -4.7 0.0 -1.4 1.2 1.5 Services 5.3 2.3 1.0 -0.2 6.4 0 ° _ _ _ GDP 4.8 3.6 2.8 2.8 6.4 EAgnoulture *Industry OServices GDP: EXPENDITURE (56 of GDP) 1985 1990 1 9 1993 1094 Growth rt otGDland GOP (%) Private consumption 86.6 96.0 108.8 93.3 90.2 20 General government consumption 16.4 10.6 9.1 6.9 7.9 15 Gross domestic investment 40.8 24.5 30.3 25.6 19.7 Exports of goods and nfs 8.9 11.0 8.1 10.6 18.7 10 Imports of goods and nfs 52.6 42.2 56.4 36.5 36.5 | 1985-90 1990-94 1992 1903 1994 , (average annual growth) a9 91 92 Prvate consumption 1.8 1.1 26.8 -17.2 3.2 .5 General govemment consumption 5.1 5.3 8.0 -5.0 20.2 10 Gross domestic investment 6.2 0.7 7.2 -3.3 -16.3 Exports of goods and nfs 14.0 -6.2 -70.2 63.8 101.7 -1'5 Imports of goods and nts 2.7 -5.7 21.3 -32.6 0.3 *20 Gross national product 5.1 2.2 4.4 0.7 7.1 Gross national income 4.5 4.2 10.8 0.5 7.0 -GDI -GDP PRICES and GOVERNMENT FINANCE 19S5 1990 1992 1993 1994 Chtange ofGOP delorandCPI(%) Domestic prices |10 (% change) 1 Consumer prices .. 33.0 69.6 48.1 Wholesale prices *. .. Implicit GDP deflator 44.9 37.3 72.8 53.5 20.7 40 Government finance 20 (% of GDP) 0 Current budget balance -14.5 2.8 -4.1 -2.7 0.0 o8 90 91 92 93 9 Overall surplus/deficit .. .. .. .. -21.9 -GDP del. -CPi Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 99 Guinea-Bissau POVERTY and SOCIAL t1985-90 1990-94 ]Dvlpetdmn (annual growth rates) IDvelopmsn diamond Population 2.0 2.1 U Ufe expectancy Labor force 1.4 1.6 most recent estimate Poverty level: headcount index (% of population) 49.0 GNP Gross Life expectancy at birth 43.9 per pimary Infant mortality (per 1,000 live births) 137.8 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 24.9 Energy consumption per capita (kg oil equivalent) 37.0 Illitera -y (lo ot population age 15+) 63.5 Gross primary enrollment (% of school-age population) 60.0 Access to safe water TRADE (millions US$) 1985 1990 1992 1993 1994 Expout and import levels (mill. USS) Total exports (fotb) 12 19 6 16 27 t00 Groundnuis 5 12 3 13 23 Other food 3 1 1 Manufactures .. Total imports lcifl 69 78 95 62" 74 5 Food 1 5 3 5 2 Fuel and energy 9 8 5 3 3 Capital goods13 2 4 4 21 0 Export price index (1987=100) 80 86 130 121 10 Import price index (1987=100) .. 122 123 117 126 0 Terms of trade (198-t 00) . 66 70 110 96 Be 89 90 91 92 93 94 Openness of economy (frade/GDP,%) 62 53 64 47 55 oExports aImports BALANCE of PAYMENTS (millions US$) 1985 199 1992 1993 1994 Current account balance to GDP rio (/) Exports of goods and nfs 20 26 18 26 45 0 Impors ot goods and nts 82 100 125 88 89 - as 1 90 91 n 9 Resource balance -62 -74 -107 -62 -43 n Net factor income -5 12 0 -5 -3 -is Net current transfers -3 1 -1 6 6 -20 | Current account balance * z - Before official transfers -70 -60 -108 -61 -40 -30 After official transfers -40 -16 -68 -25 7 |35 Long-term capital inflow 38 13 13 -13 -11 -40 Total other items (net) 18 21 60 29 -2 -45 Changes in net reserves -17 -18 -5 9 6 -90 I Memo: Reserves excluding gold (mill. US$) .. 18 18 14 Reserves including gold (mill. US$) .. 18 18 14 Conversion rate (local/US$) 160.0 2,185.5 6,933.9 10.081.9 12,892.1 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of extemal debt (%) Long-term debtexports 1,301.5 1,137.1 1,923.4 1,735.9 1,360.2 10 .°.=...... . IMF crediUexports 15.4 10.8 16.5 12.9 90 1 , Shortl-erm debUexports 200.5 87.6 147.8 146.3 9.0 Total debt serviceiexports 46.3 16.9 22.8 9.9 5.4 o PNG GDP ratios a Pne | Long-term debt/GDP 165.8 235.7 273.2 262.4 310.4 | A U Off. IMF crediVGDP 2.0 2.2 2.3 1.9 2.1 Short-term debt/GDP 25.5 18.1 21.0 22.1 2.1 25 Long-term debt ratios Pnvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0 0 Public and publicly guaranteed I 89 90 Si 92 93 94 Private creditorsiAong-term 15.3 5.7 4.8 4.3 3.6 _ tO _9 90 __ 92 93 9 Official creditorslong-term 84 7 94.3 95.2 95.7 96.4 The development diamond shows four key indicators of development in the country (in bold) compared with ifs income-group average. If data are missing. the diamond will be incomplete 100 Kenya enya is a low-income country with a per capita ment in marketing. Industrial growth slowed because the income thatdeclined from $340 in 1991 to $270 incentive structure favored the domestic market over in 1993. The decline reflects stagnant income, exports and led to an increasingly inward-looking sector population growth, and exchange rate deprecia- with declining opportunities for efficient import substi- tion over the period. The population growth rate fell tution. These factors were exacerbated by the collapse from 3.6 percent in 1984 to about 3 percent in 1993, of the East African Community. There were also nega- reflecting a sharp decline in fertility rates. About three- tive developments on the stabilization front, with the quarters of Kenya's land area is classified as arid or erosion of fiscal discipline after the coffee boom of the semi-arid. Its economy is heavily dependent on agricul- late 1970s and subsequent deterioration in the external ture, which employs about 70 percent of the labor force terms of trade due to the second oil shock. and contributes about 29 percent of GDP. Coffee and tea account for over 40 percent of merchandise exports. The Developments in the 1980s service sector, including tourism, accounts for about 54 percent of GDP and is an important source of employ- Annual GDP growth slowed to 3 percent over 1980-85 ment. Tourism is Kenya's leading foreign exchange in response to these stabilization problems and political earner. The industrial sector is relatively developed and uncertainty resulting from an attempted coup in 1982 diversified, contributes about 17 percent of GDP, and and a severe drought in 1984. By the mid-1980s stabili- employs close to 8 percent of the labor force. Kenya is zation efforts had begun to bear fruit and economic not an oil-producing country, but it has a refinery in growth started to recover. Growth in the 1986-90 period Mombasa that supplies the domestic and regional export was impressive, at 5.6 percent on average. However, the markets. improvement in macroeconomic stability was short- lived, as fiscal discipline weakened once again in the Trends in the 1960s and 1970s wake of a modest 1986 coffee boom, and Kenya began to face renewed macroeconomic imbalances. Increases Kenya's first decade after independence in 1963 was one in public sector employment pushed up the budget defi- of remarkable growth and structural change, with real cit and monetary expansion fueled inflation. Largely GDP growth averaging more than 8 percent a year. because of this expansion, adverse terms of trade, and Agricultural expansion was stimulated by converting slow growth in nontraditional exports, the current ac- high-potential land to extensive smallholder cultivation, count deficit remained high. introducing high-value production activities, and adopt- ing high-yielding maize varieties. Manufacturing Macroeconomic Performance Since 1990 growth was largely due to expanding domestic demand supported by rising agricultural incomes, theencourage- The 1991-92 period was marked by a sharp decline in ment of investment through high levels of protection. a all major macroeconomic performance indicators. Real liberal attitude toward foreign investment, and an active GDP growth fell to 1.4 percent in 1991 - and -0.8 government role in industrial promotion and invest- percent in 1992. Agricultural production was adversely ment. affected by unfavorable weather. Investment, which av- GDP growth decelerated after the 1973 oil crisis, eraged24percentofGDPover 1986-90,droppedto21.3 averaging 5.4 percent over 1973-80. In addition to the percent in 1991 and 17.5 percent in 1992. External effects of rising oil prices, this slowdown reflected the imbalances worsened as a consequence of the Persian emergenceof structural constraints. Agricultural growth Gulf crisis during 1990-91, and arrears began to accu- slowed as the margin of untapped potential narrowed, mulate on external debt. but also because of inappropriate government policies At the November 1991 consultative group meeting such as extensive and inefficient public sector involve- bilateral donors announced that they were postponing 101 Kenva aid pledges, citing a variety of concerns, including poor closure of four commercial banks and a number of macroeconomic and structural policy performance, and nonbank financial institutions. In July 1993 monetary issues of governance, human rights, and corruption. A policy was effectively tightened. and the economy be- subsequent decision by multilateral donors to withhold gan to stabilize. Annualized inflation fell to 55 percent balance of payments support was, however, largely in the third quarter of 1993 from the 100 percent level driven by concerns about economic policy failure. in the previous quarter, and nominal treasury bill rates In April 1992 the government agreed with the IMF declined. The market-determined interbank exchange on a program of actions necessary to reestablish a sound rate appreciated fromil around KSh82 to the dollar at macroeconomic framework. IMF and IDA review mis- end-June 1993 to about KSh70 in late September 1993. sions in September 1992 and March 1993 found that This paved the way for the unification of the official and monetary targets for 1992 had been substantially ex- market exchange rates in October 1993. ceeded because of abuse of the preshipment export These improvements in the policy environment fa- financing scheme, and central bank provision of large cilitated negotiation, in November 1993. of a one-year overdrafts and rediscounts to some commercial banks. Extended Structural Adjustment Facility with the IMF The excessive growth in monetary aggregates fueled and an ambitious reform agenda under for 1994-96. The inflation, which accelerated sharply from about 20 per- reform agenda included a target fiscal deficit of 6.1 cent in 1991 to around 100 percent (on an annualized percent of GDP (excluding grants) in 1993/94 and, on basis) in the second quarter of 1993. On the fiscal side, the structural side, liberalizing the maize market, de- election-related expenses and larger than anticipated regulating the petroleum sector, eliminating all remain- export compensation payments caused the 1992/93 defi- ing price controls, and reducing import tariffs and cit (excluding grants) to quickly exceed the 3.6 percent eliminating export taxes. The government program also of GDP target. These imbalances undermined the exter- called for performance contracts with key parastatals, nal reforms, inc;uding the 50 percent exchange retention divestiture of 25 non-strategic parastatals including spe- extended to tralitional exporters, implemented under cific entities in 1994, and reducing the civil service. the program. The spread between the official rate and Based on these policy reforns, a consultative group the interbank market rate widened, and Kenya accumu- meeting was held in late November 1993, and donors lated further external payments arrears. indicated new comnlmitmnents for 1994 totaling $850 mil- With the macroeconomic program off track and sonie lion. In January 1994 the government was also able to IDA sector-specif'ic conditions unfulfilled, Kenya's IDA reschedule payment of its arrears on external debt with and IMP programs came to a halt. Their programs were the Paris Club group of creditors. restarted af'ter an April 1993 agreement on an action Government achievements in the macroeconomic programil. area have been close to program targets. There was some On the external front, several devaluations of the slippage in fiscal performance as the 1993/94 deficit Kenyan shilling in the spring of 1993 raised the official target of 6.1 percent was exceeded by 1.3 percentage nominal exchange rate from KSh36 to KSh64 to the points of GDP, largely due to debt service payments on dollair, narrowing thc interbank premium to about 10 behalf of parastatals and unauthorized budgetary expen- percent. At the same time. export retention at a tlat rate ditures. However. real GDP growth in 1994 was esti- of 50 percent was reintroduced for all exporters and all mated at about 3 percent, reversing the decline over import controls (other than a short negative list) were 1991-93. and inflation was sharply contained, with end- lift'ed. 1994 inflation lower than projected under the IMF pro- Concurrently. the central bank began to mop up ex- gram. The most notable improvenient was in Kenya's cess liquidity by issuing treasury bills at high nominal external accounts, with official reserves reaching 3.6 rates. raising statutory casth ratios, and reducing access months of imports. nearly double the program target of to its rediscount and overdraft facilities. The et'fective- 1.9 months. ness ot the meaisures to absorb excess liquidity was Implementation of structural reforms was more compromised. however, by continued irregularities in mixed. Exchange controls were removed, including re- interbank anid f'oreign exchange transactions, which strictions on inward portfolio investment, and Kenya continued to add to liquidity even as open-market op- accepted the obligations of Article VIII of the IMF erations attempted to mop it up. The budgetary cost of Articles of Agreement. Liberalization of the petroleum this policy f'ailure was eventually reflected in large in- market was accomplished in October 1994. and civil terest payments due to T-bill holders, which increased service reform is generally on track, with retrenchments the budget deficit for 1992/93 (excluding grants) to 10.4 at the rate of 16.000 staff and positions per year. Re- percent ot' GDP. The failure to enforce monetary policy moval of price and movement controls on maize, the was ultimately addressed in July by a change in the staple crop. was accomplished ahead of schedule, but management of the central bank, and by the subsequent the government's comimniitmiient to maintaining a liberal- I(02 Kenya ized market for international trade in maize was brought Poverty and Social Indicators into question in August 1994 when maize imports were temporarily suspended before being replaced by a vari- The real prospect of rising unemployment and increas- able levy. While the licensing requirement for exporting ing poverty is the crucial medium- and long-term devel- maize has been removed, effective authority to export opment issue confronting Kenya; a recent poverty maize remains subject to approval by the National Ce- assessment has concluded that the incidence of poverty reals and Produce Board. That board's role remains a did not improve in the 1980s and early 1990s. The major source of concern, as it has continued to intervene percent of population in poverty was estimated to be in the domestic market in a manner that imposes large around 45 percent in rural areas and about 30 percent in budgetary costs while undermining private-sector trade urban areas. However, the period saw an increase in the in maize. Privatization of small nonstrategic parastatals depth of poverty, measured by the difference between has been ongoing, although the process has not met the actual consumption of the poor and the minimum expectations of transparency, and Kenya's commitment requirenient of 2,250 calories per adult equivalent and to carry out privatization of the more significant entities some essential nonfood expenditures. The lack of sus- remains to be tested. Progress in the management of the tained economic growth is the primary cause of income major parastatals -such as telecommunications and the poverty in Kenya. port authority - has been disappointing, particularly in Kenya has experienced a dramatic drop in the fertility restructuring, and implementing performance contracts. rate - from 7.7 in 1984 to 6.7 in 1989. and 5.4 in 1992 Legislation to amend the State Corporation Act, to put - suggesting that a demographic transition is under in place some aspects of an arms-length relationship way. Underlying the decline in fertility is an increase in between the government and parastatal management, contraceptive prevalence, from 7 percent in 1977 to 33 remains to be considered by the next session of parlia- percent in 1993. Despite this fertility decline Kenya's ment. population will continue to grow rapidly because there are large numbers of women entering their childbearing Recent Political Developments years. Kenya has been engaged in the transition to a multi- party democracy since December 1991. when opposi- The Environment tion parties were legalized and the electoral process was Poverty and population pressures on limited land re- reformed. Multipar ty elections were held in December sources are the main contributors to environmental deg- 1992. and the results, in the opinion of most foreign radation in Kenya. Environmental problems are observers, broadly represented the will of the electorate. particularly severe in arid and semi-arid regions, which Benefiting from a divided opposition, the ruling Kenya are more susceptible to ecological damage resulting African National Union party returned to power, along from population pressures. The government adopted a with its candidate for president. In the post-election national environmental action plan in June 1994 and is period, the opposition has had some success in holding expected to focus on implementation modalities over the the government to parliamentary accountability, but has coming year. been subjected to intermittent harassment and intimida- tion by the government. Press reporting on government policy failures and cases of corruption has been rela- Progress in Reform tively unrestricted, although there have been instances In August 1993 the government formally adopted a of harassment and censorship of publications sympa- comprehensive civil service reform program and estab- thetic to the opposition. Clashes between Kenyan tribal lished a secretariat to manage the program's implemen- groups since 1991 that caused a loss of lives, destruction tation. The major objective is to enhance the efficiency of property, and the internal displacement of an esti- and improve the client focus of a streamlined civil mnated 250,000 people have reduced in frequency in the service. The program aims to retrench about 74,000 staff past year, but the underlying tension remains high and (out of a total complement of about 270,000) and posi- the possibility of new clashes cannot be ruled out. tions by 1996/97 while strengthening the policymaking Historically, economic reforms in Kenya have ad- and implementation capacity of key ministries and the vanced in fits and starts. Reforms to date have put in central bank. Six of the 23 ministries have been selected place a system in which administrative discretion in for restructuring during 1995-96 in the first phase of the resource allocation has been substantially (liminished. reform, with a further six to be identified by mid-1996 Given the newness of these reforms, it is too early to be for similar restructuring. confident as to their permanence and the sustainahility In 1991 the government announced its intention to of the reform process itself. carry out a comprehensive parastatal privatization and 103 Kenya restructuring program, but progress on achieving para- Regional Economic Integration statal reforn has fallen well short of target, and the transparency of the approximately 50 privatizations that Over the past two years, Kenya has resumed active have been conducted (either fully or partially divested) discussions with Uganda and Tanzania toward reviving has been unsatisfactory. East African cooperation in trade, transport and commu- A 1990 World Bank study suggested that agriculture nications, finance, and investment, as well as regional could grow at 4 percent a year through 2000 if the policy immigration and security. In November 1994 the three environment was improved and technological support heads of state issued a communique indicating the es- provided. Recent developments are encouraging: mar- tablishment of a secretariat in Arusha to facilitate East kets for all agricultural commodities have been liberal- African cooperation and formulate steps toward ized and the role of marketing parastatals -except for strengthening regional institutions. The communique the cereals board -is being restricted. In parallel to also indicated the intention of the three governments to attempts to increase the scope for private activity, the implement the provisions of the 13-country Cross Bor- Ministry of Agriculture. Livestock Development and der Initiative. including steps to harmonize tariff rates Marketing is being restructured to make it more respon- and simplify customs procedures and consider the pos- sive to a sector increasingly dominated by the private sibility of forming a customs union. sector. The government has indicated its intention to rationalize the role and structure of the Kenya Agricul- Medium-Term Prospects tural Research Institute to improve technology genera- tion and dissemination. The prospects for achieving the growth scenario envis- Years of neglecting maintenance has exacted a toll on aged for 1995-97 will depend on the effective imple- public infrastructure in Kenya. Sections of the highway mentation of structural adjustment measures to address system and urban and peri-urban roads need complete the key development issues identified above. If macro- reconstruction, and much of the rural road network economic stability is maintained and reforms are pur- requires major rehabilitation. Water supply schemes that sued vigorously, GDP growth could reach 5 to 6 percent have deteriorated in the past decade need to be rehabili- in 1995-97, allowing per capita income growth of over tated and expanded. especially in the coastal region. 2 percent a year. Adequate funding of maintenance, particularly road maintenance, is a priority area for claim on government External Debt expenditure. Inefficiencies in the infrastructure parasta- tals has also contributed to declining quality of services. Over the period 1994-96, Kenya's current account bal- The movement capacity of Kenya Railways has de- ance (excluding official transfers) is projected to decline clined signil'icantly. and this has contributed to the de- slightly, moving from a small surplus in 1994 to a deficit creasing level of service provided by Mombasa port. In of less than I percent of GDP in 1997. As noted earlier, energy. the problem is also one of inadequate invest- accumulated external debt arrears as of end-1993 have ment. which is likely to become a severe constraint to been rescheduled over the period 1995-2001. Due to the national development if not undertaken quickly. The refinancing of arrears, amortization of existing debt is government has liberalize(d the petroleum market and projected to increase in dollar terms by 1996. However, plans to address other constraints on the sector by re- the overall scheduled debt service ratio is expected to structuring the power subsector, encouraging private- drop from about 28 percent in 1994 to about 23 percent sector participation. and ensuring appropriate pricing. in 1997. 104 Kenya Population mid-1993 (millions) 25.3 Income group: Low GNP per capita 1993 (US$) 270 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio %) Gross domestic investment/GDP 26.0 24.3 17.5 16.1 30T Exports of goods and nfs/GDP 25.3 26.2 27.1 42.0 Gross domestic savings/GDP 24.9 19.1 17.6 21.1 20 Gross national savings/GDP 22.6 15.8 13.5 17.0 Current account balance/GDP -7.0 -7.5 -4.1 0.9 1. t I_ Interest payments/GOP 2.7 2.8 2.6 3.7 Total debt/GDP 68.5 83.5 84.3 126.3 0 Total debt/exports 265.1 319.6 310.3 299.4 .. 8 8 90 91 02 93 04 GDP: PRODUCTION (% of GDP) 1985 199 1992 1993 1994 Shares of GDP by sector (%) Agriculture 32.5 29.1 27.1 28.9 .. Industry 19.1 19.1 18.7 17.6 . Manufacturing 11.7 11.8 11.2 10.4 Services 48.4 51.7 54.2 53.5 (average annual growth) 18-0199 92 19 94 5 Agriculture 4.3 -2.7 -3.3 -3.8 Industry 5.2 0.9 0.0 0.4 Manufacturing 5.8 2.2 1.2 1.8 Services 5.4 3.0 2.9 2.3 0 eS 89 90 91 92 93 94 GOP 5.6 0.5 -0.7 1.1 .. *Agriculture [tindustry iServces GDP: EXPENDITURE (% of GOP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Prnvate consumption 57.6 62.2 66.2 65.8 10 General govemment consumption 17.5 18.7 16.2 13.1 I Gross domestic investment 26.0 24.3 17.5 16.1 5 Exports of goods and nfs 25.3 26.2 27.1 42.0 Imports of goods and nfs 26.4 31.4 27.0 37.0 1985-90 1990-94 1992 1993 1994 8 g90 91 92 93 94 (average annual growth) Prvate consumption 8.5 0.9 -0.2 0.4 General govemment consumption 3.2 7.6 9.1 7.3 . Grossdomesticinvestment 4.0 -11.6 -13.2 -10.7 ..\ Exporls of goods and nfs 7.3 0.5 -0.9 3.8 .. Imports of goods and nfs 10.4 -2.7 -2.3 -1.3 . 5 Gross national product 5.3 0.0 0.1 -0.9 D I,'5G1 Gross national income 4.9 1.8 1.0 1.3 -GDI '-GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 ChangeofGDPdeflatorandCPl(.%) Domestic prices tso (% change) 40 Consumer pricesa 13.0 15.6 29.5 45.8 ' Wholesale prices ..30 Implicit GDP deflator 8.2 9.4 16.5 24.3 20 Government financeb I0 (% of GDP) |4 Current budget balance -0.7 0.6 0.6 -4.6 89 90 91 92 93 94 Overall surplus/deficit -70 -6.7 -4.8 -10.4 I -iGDPdef. -'-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 105 Kenya POVERTY and SOCIAL (annual growth rates) 199044 Devlopmt diamond Population 3.1 2.7 Life expectancy Labor force 3.5 3.6 T moat recent estimate Poverty level: headcount index (% of population) 37.0 GNP Gross Ufe expectancy at birth 58.5 per primary Infant mortality (per 1,000 live biths) 61.0 capita enrollment Child malnutrition (% of children under 5) 22.3 Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 99.2 1 Illiteracy (% of population age 15+) 31.0 Access to safe water Gross primary enrollment (% of school-age population) 95.0 TRADE (millions USS) 1992 1993 1994 Export and kmport levels (mill USS) Total exports (fob) 940 1,001 973 1,096 2.500 Fuiel 118 58 70 67 Coffee 281 192 129 191 2. O Manufactures 117 140 136 150 Total imports (cif) 1,486 2,288 1,880 1.605 1,500 Food 112 119 158 152 Fuel and energy 461 462 396 439 io Capital goods 340 669 414 312 S Export price inclex (1987=100) 90 ill 104 Import price index (1987=100) 81 111 8L Termsoftrade(19b7=100) 111 99 121 .8 .g 90 91 92 93 94 Openness of economy (ra de/GDP, %) 52 58 54 79 cExports nt mpons BALANCEofPAYMENTS (millions USS) 1965 1990 12 1993 1994 Current account balance to GDP ratio (%) Exports ot goods and nfs 1,552 2,217 2,151 2,326 2 T Importsol goodsand nis 1.849 2,659 2,283 2,170 O nF- I Rlesource balance -297 -442 -132 158 |. 118 |89 190 191| 9't 94| Net factor income -213 -367 -263 -243 -2 2I Net current transfers 81 167 68 136 Ti Li Current account balance Belore official transfers -429 -642 -327 49 ,j ] Atter official transfers -319 -437 -102 143 | .j Long-lerm capital inflow 119 393 259 166 I Total other items (net) 168 -68 -141 137 T Changes in net reserves 33 113 -16 -446 | ,2 Memo: Reserves excluding gold (mill. USS) 391 205 53 406 558 Reserves including gold (mill. USS) 417 236 80 437 588 Conversion rate (locat/US$) 16.4 22.9 32.2 58.0 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structur of exmal debt (%) Long-term debt/exports 202.5 257.0 257.6 244.9 1'0 IMF crediVexports 32.9 21.6 18.2 15.5 Short-term debt/exports 29.7 41.0 34.4 38.9 Total debt service/exports 39.2 36.4 33.1 27.9 |75 c PNG GDP ratios a pMv. Long-term debt/GOP 52.3 67.1 70.0 103.3 50 a tf. IMF credit/GDP 8.5 5.6 5.0 6.6 Short-term debVGDP 7.7 10.7 9.3 16.4 Long-term debt ratiso Private nonguaranteed/long-lerm 16.2 15.4 10.4 10.5 9.9 Public and publicly guaranteed Prvate creditorsAong-term 13.2 20.3 20.6 18.6 16.2 a se9 90 91 92 93 94 Ofticial creditors/long-term 70.6 64.4 69.0 70.9 73.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. a. Average Nairobi lower income price indices (1987 to 1993) b. Fiscal year (July to June) 106 Lesotho esotho is at a crucial juncture of its political and white-owned industry against international and domes- L economic development. With the return to de- tic competition stifled the development of a diversified mocracy in 1993 after 23 years of authoritarian productive base in Lesotho oriented toward supplying rule, and rapid change in South Africa, Lesotho the South African markets. Third, the inefficiencies as- has an opportunity to re-evaluate the perspectives of the sociated with the overly capital-intensive and uncompe- past and to reorient its development toward greater titive production of basic consumer goods and services economic integration with South Africa and the region. in South Africa have hurt Basotho consumers in genera] In terms of macroeconomic management, Lesotho has and the poor in particular. Fourth, the labor recruitment been an above-average performer in Sub-Saharan Africa policies followed by the South African mines have had and has successfully corrected the fiscal imbalances of devastating effects on family structure in the recruitment the 1980s. It can look forward to substantial financial areas, including Lesotho. flows from the sale of water resources to South Africa Lesotho responded to these policies by adopting an under the Lesotho Highlands Water Project and has import-substitution strategy for basic consumer goods made important progress in delivering social services to and services after independence from Britain in 1966. A its population. However, these advances have been key element of that strategy was the creation of parasta- marred in the past few years by declining government tals and public companies in those areas where the performance in implementing structural reforms. On the government's perception was that a domestic private political front, the new democratic government has had sector was virtually nonexistent, or that emerging pri- problems with insubordination in the ranks of the de- vate entrepreneurs would not be able to compete against fense force over pay and political disaffection, and has large-scale South African enterprises. Hence, public in- had to request international mediation to deal with two vestment in the parastatal sector, strongly supported by short-lived mutinies and a palace coup. donors, dominated economic activity through much of Lesotho's emergence as a labor reserve for South the 1970s and 1980s. However, by the mid-1980s it Africa closely followed the general pattern of the crea- became clear that parastatal and public company invest- tion of native reserves in the Southern African region. ments had been unable to generate sustained economic In the mid- 19th century European settler regimes effec- growth or increase the labor-absorptive capacity of the tively lowered the potential profits in a free African economy. Parastatal losses became a drain on the gov- farming sector to force peasants into farm or industrial ernment's resources, while crowding out private invest- labor. In the case of the Basotho, measures included ment and raising consumer prices for the goods and seizing most of its arable land, confining independent services produced. By fiscal 1988, the deficit reached 20 Basotho farming to a remote and mountainous area that percent of GDP, or 10 percent of GNP-Lesotho's GNP was to become the independent state of Lesotho, and is about twice the size of its GDP due to the migrant adopting protectionist measures against agricultural ex- workers' remittances, which are included in the GNP ports from Lesotho. estimate, but excluded from GDP. An imprudent rise in During the 20th century, Lesotho's dependence on military expenditures caused a further deterioration of the South African economy cast it in the role of exporter the fiscal balance. In 1988 Lesotho adopted a structural of labor and exposed it to the long-term consequences adjustment program supported by the IMF. of South Africa's economic policies. The failure of the inward-looking and capital-intensive South African economy to use its plentiful factor - labor - efficiently has meant a general decline in employment opportuni- The adjustment program was triggered by the fiscal ties, with negative consequences for Lesotho, given its imbalance, but was also designed to find ways of reduc- historic dependence on labor migration. Second, the ing Lesotho's macroeconomic vulnerability to exoge- high degree of protection granted parastatal and private nous shocks and to set up a macroeconomic and policy 107 Lesotho framework that would enable private sector develop- from 12.6 percent in fiscal 1989 to 2.4 percent in fiscal ment and the productive use of Lesotho's substantial 1993. Real GNP growth fared even worse, falling from revenues from the Highlands Water Project. While the 8.8 percent in fiscal 1989 to 0.3 in fiscal 1993. Real GDP external balance was threatened by a structural decline and GNP growth recovered in fiscal 1994 to 7.7 and 8.8 of migrant workers' remittances and Southern Africa percent, respectively. Customs Union revenues, the scope for corrective ex- The reforms envisaged in the adjustment program change rate and monetary policies was limited, given were intended to promote growth and expand employ- Lesotho's membership in the customs and monetary ment opportunities while continuing to strengthen the unions. The only significant short-term means for cor- fiscal and balance of payments positions. Reforms in- recting the imbalance required reducing public expen- cluded privatization and parastatal reform, and improv- ditures and increasing revenues, and Lesotho has taken ing land management and tenure systems to raise this route through successive structural adjustment pro- agricultural productivity. Supporting structural meas- grams. ures sought to increase outlays and improve efficiency The stabilization measures proved extremely suc- in the use of funds for social services, encourage capac- cessful. The fiscal deficit, after grants, of 10.3 percent ity building in the civil service - with special emphasis of GNP in fiscal 1988 was reversed into a surplus of 3.6 on financial management and personnel training - and percent of GNP by fiscal 1994. The rate of inflation, promote sound environmental management practices. currently estimated at less than 9.5 percent, is decelerat- Implementation of these structural reforms was slow ing, mirroring the trend in South Africa. Finally, the and deteriorated during the final two years of the mili- external current account deficit was reduced from 7 tary regime. Nonetheless, some progress in structural percent of GNP to 2.0 percent, and foreign exchange reform was witnessed over 1988-94. The environment reserves were built up from less than 6 weeks to over 16 for private investment improved through changes in the weeks of impo.ts. Overall balance of payments went tax law and streamlining of licensing and work permit from a deficit cf SDR 3.9 million in fiscal 1988 to a procedures, and the government formulated a phased surplus of SDR 101 million in fiscal 1994. medium-term comprehensive parastatal reform pro- Other positive developments included impressive gram. Progress, albeit slow, was made in education and improvement of manufacturing export performance, health programs. caused by the inflows of foreign private investment of East Asian or South African origin attracted by the Poverty and Social Indicators improvement in the macroeconomic framework, inten- sive investment promotion efforts in the early 1990s, Lesotho has made substantial progress in the last decade Lesotho's attractive labor wage rates and productivity, in human resource development. Mortality rates are and preferential access to export markets through the falling and some 75 percent of all six- to twelve-year- Lome Convention and the General System of Preter- olds are enrolled in primary school. There is a solid core ences applicable to low-income countries. In 1992 total of social infrastructure, exemplified by a wide network exports increased by 67 percent in nominal terms, of schools and clinics. However, the impressive ad- caused by a sharp rise in textiles, garments, footwear, vances made by Lesotho in human resource develop- and light manufactures, which now account for over 80 ment are threatened by management and manpower percent of total exports and provide employment for deficiencies, population pressure, and the future cost of about 11,000 people. This strengthened a trend estab- epidemic diseases. In education, quality is declining lished in the 1980s. when exports - mainly driven by when Lesotho is in greatest need of an expansion of textiles and footwear - increased 30 percent a year, skills, and needs to be responsive to the demands of although from a very small base. In 1993 exports slowed economic diversification and emerging employment op- because of quotas imposed on Lesotho's garment indus- portunities in the region. Notable advances in the expan- try. In 1994 despite an increase in export volume, the sion and quality of primary health care services are total value of exports in dollar terms showed no signifi- constrained by bottlenecks in planning, finance, and cant increase from fiscal 1993's $112 million because training. Lesotho's already high dependency ratio is in more than 40 percent of Lesotho's exports were to South danger of worsening even more if fertility does not fall Africa. whose rand depreciated by 12.7 percent in fiscal rapidly and measures to prevent sexually transmitted 1994. diseases are not expanded. However, during the period of stabilization. eco- Despite Lesotho's achievements in providing social nomic growth was uneven and management of structural services, poverty continues to be serious and is charac- reforms slipped considerably. following a general trend terized by the high proportion of people classified as of declining civil service performance. Severe drought poor - 50 percent - and very poor - 25 percent - in conditions also contributed to a fall in real GDP growth 1993. The incidence of poverty is most severe in the 108 Lesotho rural areas: according to one estimate it is twice as high Lesotho's households live in the rural areas, and even in as in Maseru, the capital. The continued high rates of the rural areas remittances make up more than 50 percent poverty find their root in still insignificant progress of average household incomes. made in developing an indigenous private sector in key A continued peaceful transition in South Africa sectors such as handicrafts, textiles, and agricultural should lead to an economic resurgence. A dynamic processing and marketing. Furthermore, an import ban South Africa will stimulate the development of Leso- on wheat and maize flour to protect domestic process- tho's domestic productive base, since it is likely that the ing and production of basic food grains may also hurt new South African economy will liberalize its markets the poor. The food price-raising effect functions as a and generate many opportunities for black, small-scale regressive tax, while inhibiting diversification of agri- entrepreneurial activity that can take advantage of Leso- culture. tho's labor cost competitiveness. Structural reform has been hampered by entrenched Developments in international trade, particularly the interests in current economic structures, which have impact of the new GATT, will also challenge Lesotho. inhibited genuine empowerment of local communities South Africa may be able to negotiate special trade status and indigenous entrepreneurs. The pace of agricultural with the United States and the European Union, which. and land reform has been disappointing, as little was in combination with the lifting of international sanctions done following amendment to the Land Act and the on South Africa, may prompt some industries to relocate gazetting of the grazing fees, which were suspended by within South Africa's borders. Moreover, trade restric- the new government in 1993. Protection of parastatal tions on Lesotho's garment industry may continue to industries against South African firms has distorted do- stifle export growth. For instance, in fiscal 1994 Leso- mestic competition in favor of capital-intensive parasta- tho's textile exports to have slowed considerably be- tals at theexpense of moreemployment-intensive, small cause of recent export quotas imposed on ILesotho's and medium-scale indigenous businesses. The success garment exports by the United States because of dis- of Lesotho's small but thriving industrial sector based agreement over origin. on foreign direct investment, of which around two- Severe drought hit Lesotho in 1992-93 and resulted thirds is of South African and one-third of East Asian in high food expenditures and imports. Another major origin, is double edged. Employment has increased sub- drought is unfolding in the 1994/95 season. Improved stantially as the sector has sustained 20 percent real water resource management is an important element of annual growth over the past 20 years, but substantial a strategy aimed at drought-proofing the economy. Ad- resentment leading to civil unrest was fueled by a per- ditionally, carefully managed financial reserves that can ceived dominance of foreign investors at the expense of be quickly mobilized to protect vulnerable groups from local entrepreneurs. The sustainability of reforms is the effects of such shocks will go a long way to minimize most threatened, however, by lack of progress in civil the risks of natural disasters. Continued liberalization of service reform, which stalled after a promising start with South African agricultural markets will improve food Swedish, British, UNDP, and World Bank assistance. security in the region through lower consumer prices The loss of momentum coincided with a growing lack and increased reliance on international grain trade, in of political direction in government and gradual politi- particular during periods of drought. cization of the civil service. Challenges to Lesotho's economy include the Recent Political Developments transformation of the South African economy, changes in the international trade regime, and the regular occur- In March 1993 the Basotho Congress Party won all 65 rence of drought. With a 1993 GNP per capita estimated seats in the lower house of Parliament, making Lesotho at $650, Lesotho is encircled by South Africa with a effectively a one-party democracy. The fragility of the GNP per capita of $2,980. Over 80 percent of Lesotho's democratic process - accentuated by mutinies in the trade takes place with South Africa. Customs Union ranks of the defense force in 1993 and 1994, a thwarted revenues, collected as duties on imports by the South palace coup in August/September 1994, and the inexpe- African government, constitute around 50 percent of rience of the new government and parliament in policy- Lesotho's government revenues. In any given year about making and implementation, resulted in an extended 140,000 men, 40 percent of Lesotho's male labor force, breathing space that allowed the government to focus on are employed in the Republic of South Africa. Migrant issues of strategy and capacity. The new government earnings constitute about 50 percent of Lesotho's GNP came to power with a strong political and social vision and allow imports worth more than 1.5 times the value deeply rooted in the principles of participatory democ- of domestic production. Over 80 percent of adult men racy. While it subscribes to some of the basic principles living in Lesotho have been migrant workers in South of the structural reform agenda introduced by the pre- Africa at some point in their lives. Around 80 percent of vious authoritarian regime, it is conscious of the need 109 Lesotho for a fundamental change in strategy, given the fast- chiefs will continue to play a role, provided they act moving political and economic context that has just been through democratically elected village councils and are described. held accountable for their activities. Civil service reform While the government's policy framework is still is seen as necessary for improving the working condi- emerging, the Congress Party's election program points tions, career outlook, and remuneration packages of to a number of strategic themes underlying the govern- public employees. ment's development objectives and policies. Demo- The party envisions a mixed economy characterized cratic decentralization and civil service reform are high by government participation in essential services and on the government's agenda. The Congress Party's minimum intervention in priority sectors of the econ- strong democratic and populist political orientation omy. There is a strong commitment to maintain macro- holds considerable promise in the areas of local partici- economic stability, create employment, encourage pation in the development process and poverty allevia- private-sector development, offer strong support to Ba- tion. Democratic decentralization is to be achieved sotho entrepreneurs in all sectors of the economy, and through the establishment of democratic structures at continue privatizing government activities that can be the district and village council levels. It is envisaged that done more efficiently by the private sector. 110 Lesotho Population mid-1993 (millions) 1.9 Income group: Low GNP per capita 1993 (US$) 650 Indebtedness level: Le" Indebted KEY RATIOS 1985 1990 1992 1993 1994 Invstmont to GDP ratio (%) Gross domestic investment/GDP 49.4 72.7 82.9 82.9 85.8 90 Exports of goods and nst/GDP 12.7 9.5 14.1 15.8 15.3 7 Gross domestic savings/GDP -77.5 -46.1 -30.2 -23.1 -13.7 so Gross national savings/GDP 40.8 27.2 32.9 86.9 so Current account balance/GDP 2.7 -47.5 -45.0 -23.2 30 Interest payments/GDP 1.7 1.3 1.9 1.5 1 6 10 Total debt/GDP 70.9 65.0 63.7 67.5 68.8 AE Total debt/exports 48.4 70.2 77.1 88.5 .. 90s a so 91 92 93 94 GDP: PRODUCTION (% of GOP) 1985 1990 1992 1993 1994 Share of GDP by *ctor (%) Agnculture 21.5 20.0 9.3 12.0 13.7 1OD Industry 29.6 38.2 45.9 43.7 45.8 Manufactunng 11.1 13.2 17.0 17.1 16.6 Services 48.9 41.9 44.7 44.3 40.5 1 98590 1990-94 1992 1993 1994 50 (average annual growth) Agriculture 8.1 -2.3 -23.3 18.3 46.0 Industry 15.5 11.4 10.8 5.8 22.0 Manufacturing 13.6 10.4 15.1 5.0 12.9 Services 5.1 5.0 3.5 5.1 6.7 0 . _ + i i + I a9 59 90 91 92 93 94 GDP 8.2 6.1 2.6 5.0 17.5 uAgriculture miIndustry 0 Services GDP: EXPENDITURE (%of GDP) 1985 1990 1992 1993 1994 GrowthratesofGDI ndGDP(%) Private consumption 144.5 123.0 100.4 93.0 85.6 50 General govemment consumption 33.0 23.1 29.8 30.2 28.1 45 Gross domestic investment 49.4 72.7 82.9 82.9 85.8 40 Exports of goods and nls 12.7 9.5 14.1 15.8 15.3 35 Imports of goods and nfs 139.7 128.3 127.3 121.8 114.8 30 1985-90 1990-94 1992 1993 1994 25 (average annual growth) 20 Private consumption 0.5 -7.0 .. .. |s General govemment consumption 1.6 4.8 .. * Gross domestic investment 18.6 5.5 7.3 7.3 Exportsofgoodsandnfs 14.6 9.0 3.0 11.6 * T Imports ot goods and nfs 5.0 3.1 -1.7 5.2 0 Gross national product 3.8 2.7 -1.4 6.2 7.0 so 90 91 92 93 94 Gross national income 3.0 1.9 0.2 7.0 GDI --GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 ChangeofGDPdeflatorandCPI(%) Domestic prices 20 (% change) Consumerprices 13.3 11.6 17.2 13.8 IS Wholesale prces .. .. .. .. .. 0 Implicit GDP deflator 16.9 15.7 15.4 10.6 8.1 Govemment finance (% of GDP) oi Currentbudgetbalance .. 11.0 13.9 16.5 as 90 91 ra 93 94 Overall surplus/deficit .. .. .. .. .. -GDP det. *-CPI! Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 111 Lesotho POVERTY and SOCIAL 1985-90 1990-94 Developmentdiamond' (annual growth rates) Lieepcac Population 2.7 2.7 Life expectancy Labor iorce 2.0 2.1 7 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 60.9 I per primary Infant mortality (per 1,000 live births) 77.0 capita enrollment Child malnutrition (% of children under 5) Access to sate water (% of population) 46.4 Energy consumption per capita (kg oil equivalent) Illiteracy (% of population age 15+) . Access to safe water Gross primary enrollment (% of school-age population) 106.0 TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) (millbons USS) Total exports (fob) 22 59 .. 700 n.a na. .. .. Manufactures 2 so - . Total imports (cif) 335 670 4. . 1 Food 66 ..3900 Fuel and energy 32 .. .. Capital goods 56 200- .EXpOn price incdex (1987=100) 69 93 ... .100-Ir Import price index (1987=100) 72 137 .. .. .. 0o - -t,---- . Terms of trade (1987=100) 95 68 .. .. 8. 89 90 91 92 93 94 Openness of economy (trade/GDP,°/O) 152 138 141 138 130 | Exports IOlImports BALANCE o1 PAYMENTS 1985 1990 1992 1993 1994 (millions USS) Current account balance to GDP ratio (%) Exports of goods and nis 39 106 127 114 .. 0t 8 1 Imports of goods and nis 343 825 929 919 . o 1i 89, 9091 92 93 94 Resource balance -304 -719 -802 -805 -20 Net factor income 249 427 463 625 I Net current transfers 62 5 3 4 . -30t Current account balance .40 tI Before official transfers 7 -287 -337 -176 -f+ Afterohicialtransfers 7 -131 -70 -135 -80 Long-term capital inflow 16 129 179 54 .. I Total other items (net) -2 27 -17 81 -70 Changes in net reserves -21 -25 -92 0 .. .80 I l Memo: Reserves excluding gold (mill. US$) 44 72 157 253 Reserves including gold (milt. US$) 44 72 157 253 Conversion rate (locallUS$) 2.2 2.6 2.9 3.3 3.5 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of extemal debt (%) Export ratiosb Long-term debtlexports 46.2 67.0 72.3 81.5 IOD0 IMF credit/exports 161 2.7 4.0 5.9 Short-term debt/exports 1.1 0.5 0.8 1.0 Total debt service/exports 5.2 4.1 5.5 5.6 75 i PNG GDP ratios is Prvt. Long-term debt/GDP 67.7 62.0 59.7 62.2 64.5 50 _ ott. IMFcredit/GDP 1.6 2.5 3.3 4.5 3.8 Short-term debt/GDP 1.6 0.5 0.7 0.8 0.5 Long-term debt ratios Prvate nonguaranteed/ong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 09 a9 90 91 Pnvate creditorsAong-term 4.7 9.3 6.4 4.7 7.5 92 93 94 Official creditors/long-term 95.3 90.7 93.6 95.4 92.5 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing. the diamond will be incomplete. 112 Madagascar adagascar is a striking example of a country tion that increasingly threatens sustainable develop- with significant but unfulfilled growth poten- ment. The forest cover has been reduced by 50 percent tial. It is the world's fourth-largest island, in the last 30 years, and in some areas erosion is decreas- with a rugged topography, a wide range of soil ing agricultural productivity and threatening infrastruc- types and climates, a rich mineral endowment, unique ture. Low technology use, slash-and-burn cultivation, flora and fauna, and many beaches, and enjoys abundant and wide-spread poverty and high population growth low-wage and trainable labor. And yet, with a population have contributed to environmental degradation. The of over 13 million growing at 2.8 percent a year and a authorities recognized the importance of this issue, and 1993 per capita income estimated at $220, it is one of Madagascar was the first African country to prepare a the world's least-developed countries. Poverty is wide- national environmental action plan. spread. The economy is predominantly based on From independence in 1960 until 1970, Madagascar agriculture, which accounts for one-third of GDP and is enjoyed modest growth. The trend faltered in the mid- the main source of income for 80 percent of the popula- 1970s as the country underwent a socialist revolution tion. The agricultural sector is dominated by small-scale that resulted in authoritarian rule and dirigiste economic farms producing export and food crops. Agricultural policies. The government followed a policy of nation- products provide about 60 percent of export earnings. alization and economic controls that effectively discour- Major exports are vanilla, coffee, and shellfish. Rice is aged private-sector development. It made the country's main staple. The industrial sector (about industrialization through import substitution a central 13 percent of GDP) is showing positive results from objective, with agriculture relegated to a supporting efforts to move away from capital-intensive and import- role. By the late 1970s this strategy culminated in an substituting activities toward labor-intensive and ambitious public investment program composed of export-oriented production. Madagascar has significant large. capital-intensive and economically nonviable pro- long-term economic potential, given its industrious la- jects, financed to a large extent by external borrowing bor force and an abundant and wide variety of natural on commercial terms. The policy, together with declin- resources. ing terms of trade and stagnant domestic revenues, led to widening external and domestic disequilibria, high Poverty and Social Indicators inflation, and a contraction in real GDP of 11 percent between 1980 and 1982. The government was soon Madagascar's social conditions are below Sub-Saharan obliged to institute a stabilization program with support standards: life expectancy is about 50; child mortality from the IMF. claims 15 percent of live births before age five; malaria The financial situation stabilized over the 1983-87 is a major health problem, and tuberculosis and other period, during which there was once again modest communicable diseases are increasing; chronic malnu- growth. A series of measures to liberalize domestic trade trition of up to 40 percent exists in certain areas; and and deregulate prices, in conjunction with a sizable illiteracy is increasing. Food security is a particularly devaluation of the currency and a liberal import system, serious problem, especially in urban areas, and has wors- boosted output. Between 1988 and 1990 Madagascar ened over recent years largely due to economic decline. saw a modest increase in per capita GDP. This period The public health and education systems are poorly also saw an increase in private domestic and foreign managed, underfunded, and inefficient. Little has been investment, particularly in the export industries. done to control population growth. Madagascar is one of the ecologically richest coun- tries in the world; unfortunately it is also one where the Recent Political Developments heritage of biological diversity is more at risk as the Economic progress was accompanied by political liber- country finds itself in a cycle of environmental degrada- alization, which began in 1989 with the lifting of press 113 Madagascar censorship and included unrestricted multiparty activ- 1991-94: real per capita income declined by 10 percent, ity, as well as steps to adapt the country's socialist the fiscal situation deteriorated, the competitiveness of constitution to the new market orientation. However, the economy declined, and poverty increased. demonstrations and strikes erupted in the summer of The economic price exacted by the political transi- 1991, paralyzingpublic administrationandseverelydis- tion was particularly costly in 1991 when real output rupting economic activity. Output fell, inflationary pres- declined 6.8 percent, private per capita consumption sures increased and the external position weakened. The decreased 3.6 percent, and inflation rose 14 percent. The situation of the poor worsened. Despite the unfavorable 20 percent decrease in imports in dollar terms was not political and economic environment, private sector in- sufficient to reverse the worsening external position, vestment continued, particularly in labor-intensive ex- forcing the accumulation of $180 million in new arrears port activities under the special regime of the export by end-1991 and the suspension of the open general processing zone, which was introduced in 1990 and was licensing system of foreign exchange allocation in Oc- very successful in creating jobs and expanding nontra- tober 1991. Government revenue declined to 9.3 percent ditional exports during 1990-93. This private sector of GDP, compared to 13.3 percent in 1990. The overall response vividly demonstrates Madagascar's underly- fiscal deficit climbed to 10.2 percent of GDP. compared ing potential and reinforced the position of reform- to 7.8 percent in 1990). minded groups in the country that support new Overthe 1992-94period,economicgrowthaveraged adjustment measures and private-sector-led growth. 1.6 percent, underscoring the need for widespread re- The political crisis led to a transitional power-sharing form. Domestic investment and savings remained low, arrangement, and a coalition government was put in at about 12 percent and under 3 percent of GDP, respec- place in early 1992. A new constitution was adopted in tively. In the external sector, some improvement was August 1992, and presidential elections were held in noted as the current account deficit (without grants) February 1993, followed by parliamentary elections that relative to GDP fell to about 9 percent on average June, and a new government was formed in August (compared to 10 percent in 1991). Government revenue 1993. The shift to pluralistic democracy was remarkably stagnated, averaging 9.9 percent of GDP. The overall peaceful. deficit of the central government continued to remain high, averaging 8.5 percent of GDP. During the period, inflation was almost 18 percent. The debt overhang continued to be a serious constraint: debt outstanding In 1985. when fiscal deficits and inflation had been remains high at 140 percent of GDP by end-1994, and reduced to manageable levels, the government turned its the scheduled debt service ratio represented 60 percent attention to structural adjustment efforts with the sup- of exports, and Madagascar was in arrears to most of its port of the World Bank and other donors. The adjustment creditors. Arrears amounted to about $1.6 billion at the process first focused on correcting the large currency end of 1994. overvaluation, reducing price controls, streamlining and Madagascar's vulnerability to external factors was reforming the inefficient parastatal sector and state- apparent in early 1994 when two cyclones struck the owned banking system, and liberalizing domestic and island, wreaking great damage to the main transport external trade. In 1987 the government embarked on a corridor linking the port of Toamasina to the central broader reform agenda spelled out in a series of policy highlands, where the capital is located. Roads, bridges, framework papers supported by the IMF. and railway lines were disrupted not only because of The policy reforms undertaken since the mid-1980s aging infrastructure but because of runoff made worse have drastically altered Madagascar's economic land- by environmental degradation. scape, bringing an unprecedented degree of freedom to In April 1994 the government committed itself to the markets and restoring economic growth after a resume the economic reform process and took initial prolonged period of uninterrupted decline. The adjust- steps. A floating exchange rate system put in place in ment experience also contributed to an important shift May resulted in a nominal devaluation of about 100 in mindsets. The export processing zone demonstrates percent against the French franc; import restrictions the potential for export-led, private-sector-based were lifted; and a revised budget law was presented to growth. parliament, including a new value-added tax. The mo- mentum of reform halted, as the government was unable Recent Economic Developments to reach agreement on a program with the World Bank and the IMF. Early in 1995 the governinent signaled its Political transition to multiparty democracy and disrup- desire to renew dialogue with the Bretton Woods insti- tion of the adjustment process significantly affected tutions, and agreement was reached with the IMF on the Madagascar's economic and financial performance over government's program, with the primary objective of 114 Madagascar sharply moderating inflation. Program measures in- fighting and jockeying for control at various levels cluded sharp price increases for energy products, con- throughout government, may still further delay deci- sistent with the termination of price subsidies and sionmaking and the process of recovery. increases in excise taxes. The government also decided The government has committed itself, in principle, to to revise its 1995 budget. a program of economic revitalization designed to un- leash the Madagascar's substantial potential and put the Medium-Term Prospects country on a sustainable growth path. Its priorities are to stabilize the economy by restoring macroeconomic Despite the setbacks to adjustment during the political management, with the principal objectives of increasing transition, private investors have maintained their con- public savings, strengthening monetary management, fidence in Madagascar's future. Progress depends, how- and containing inflation, and fostering private-sector ever, on the pace of economic reforms. The complex development by improving the business environment political landscape in the country, characterized by in- and providing needed infrastructure. 115 Madagascar Population mid-1993 (millions) 13.9 Income group: Low GNP per capita 1993 (US$) 220 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 InvestmenttoGDPratio(%) Gross domestic investment/GDP 8.5 17.0 11.3 11.4 11.7 20T Exports of goods and nts/GDP 11.6 16.6 16.7 15.3 22.2 Gross domestic savings/GOP 1.3 6.3 3.5 2.3 1.5 Gross national savings/GDP -1.9 3.6 2.6 2.3 .. Current account balance/GOP -8.5 -13.4 -8.7 -9.7 -16.6 | |i i . Interest payments/GDP 2.1 3.7 1.1 0.7 1.1 Total debt/GDP 96.1 137.5 149.8 136.3 149.4 ___________________ Total debt/exports 765.2 796.2 879.1 948.9 529.9 0 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (%) (% of GDP) Agriculture 35.1 32.3 33.3 33.9 35.3 7 7 7 r7 Industry 13.3 14.3 13.8 13.8 12.7 Manufacturing .. .. Services 51.5 53.4 52.9 52.2 52.0 (average annual growth) '1985-90 1990-94 1992 1993 1994 so (Averagutue anua0gow5 Agriculture 3.1 1.5 1.7 3.2 -0.5 Industry 2.3 -0.7 -1.0 3.2 -6.1 Manufacturing.. . Services 2.6 0.3 1.1 2.2 4.0 92 3 94 GDP 2.8 -0.2 1.1 2.1 1.1 uAgricullure lf1ndustry LServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 [GrowthratesofGDlandGDP(%/) Prvate consumption 89.0 87.5 89.1 89.9 91.0 60 General govemment consumption 9.8 6.2 7.5 7.9 7.5 Gross domestic investment 8.5 17.0 11.3 11.4 11.7 40 Exports of goods and nis 11.6 16.6 16.7 15.3 22.2 Imports of goods and nis 18.9 27.3 24.5 24.5 32.3 20 1985-90 1990-94 1992 1993 1994 0 94 (average annual growvth) 89 0\ - 2 93\4 Pnvate consumption -0.3 0.1 -3.0 2.8 2.5 20 General govemment consumption 1.3 -2.2 0.5 -3.6 0.7 Gross domestic investment 17.8 -7.4 45.4 8 6 -21.0 Exports of goods and nfs 3.7 4.4 2.0 4.8 7.1 Imports of goods and nfs -1.6 -0.4 0.6 8.7 0.4 Gross national product 2.5 0.2 3.0 2.8 0.7 - Gross national inoome 1.5 -0.6 2.0 1.8 0.8 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 ChangeofGDPdeflatorandCPI(%) Dometlc prices 35 (% change) 30 Consumer prices 10.6 11.8 14.5 10.0 .. 25 Wholesale prices 20 Implicit GDP deflator 10.4 11.4 12.6 13.0 32.4 rI 10 Govemment finance S (% of GDP) o Current budget balance -0.4 0.0 -4.3 -1.6 -1.7 89 90 91 92 93 94 Overall surplus/deticit -7.5 -7.8 -12.4 -10.1 -5.8 -GDPdef. -6-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 116 Madagascar POVERTY and SOCIAL 1 985-90 199tS94 FDevelopment diamond' (annual growth rates) . ieepcac Population 3.4 3.2 Life expectancy Labor force 2.1 2.3 T most recent estimate Poverty level: headcounl index (% of population) .. GNP Gross Life expectancy at birth 57.0 per pnmary Infant mortality (per 1,000 lve births) 93.0 capita enrollment Child malnutrition (% of children under 5) 39.0 4' Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 34.2 Illiteracy (% of population age 15+) 19.8 Access to safe water Gross primary enrollment (% of school-age population) 79.0 TRADE 1985 1990 1992 1993 1994 Export and import levels (mill. USS) (mil/lions US$) Total exports (fob) 291 319 328 297 410 700 Coffee 103 39 32 40 143 6r Otherfood 35 20 9 6 51 Manufactures .. . . 7 12 -10 Total imports (cif) 466 649 547 594 549 400 Food 50 49 58 51 11,7 dl Fuel ancdenergy 85 113 72 84 60 3' _IF Capital goods 98 1856 129 139 129 2- Export price index (1987=100) 92 112 117 112 .r Import price index (1987=100) 133 136 108 118 .. Terms of trade (1987=100) 69 82 108 95 .5 83 90 91 92 93 94 Openness of economy (trade/GDP.%) 31 44 41 40 55 DExports Ulmports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 1 - - I (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 350 513 499 481 601 o Imports of goods and nfs 503 842 733 810 880 -2 5 59 90 91 92 93 94 Resource balance -153 -329 -234 -328 -279 -4 Net factor income -129 -160 -137 -130 -240 -6 Net current transfers 39 77 109 132 51 Current account balance Before official transfers -243 -412 -262 -326 -468 After official transfers -243 -251 -136 -167 -404 112 t Long-term capital inflow 66 17 -79 -78 -114 -14 Total other items (net) 154 97 231 262 518 -16 Li Changes in net reserves 24 137 -17 -16 0 |18 - Memo: Reserves excluding gold (mill. US$) 48 92 Reserves including gold (mitl US$) 48 92 Conversion rate (local/US$) 662.5 1,494.1 1.864.0 1,913.8 3,064.8 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of extemal debt (%) Long-term debt/exports 676.5 711.0 764.3 809.7 510.8 100 IMF credit/exports 51.3 27.0 20.7 19.0 10.5 Short-term debt/exports 37.4 58.2 94.0 120.2 8.7 Total debt service/exports 48.6 49.1 19.1 14.3 12.0 75 oPNG GDP ratios E pM | Long-term debVGDP 85.0 122.8 130.3 116.3 144.0 so a Of. IMF credit/GDP 6.4 4.7 3.5 2.7 2.9 Short-term debt/GDP 4.7 10.0 16.0 17.3 2.4 Long-term debt ratios Private nonguaranteedilong-lerm 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 Private cr3ditorsAong-term 18.4 7.4 6.7 6.1 5.8 8 89 9e 91 92 93 94 Official creditors/long-term 81.6 92.6 93.3 93.9 94.2 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missilig, the diamond will be incomplete. 117 Malawi ver the past three years Malawi has completed standing distortions and Malawi's social and human a remarkably peaceful political transition from resource indicators deteriorated throughout the 1980s. some thirty years under a single-party system Malawi took initial steps in 1989 to develop struc- to a multiparty democracy. This achievement is tural policies focused on removing constraints to sus- all the more impressive given the economic challenges tamable growth while addressing the roots of pervasive of the early 1990s, including withdrawal of nonhumani- poverty. The new attempt to reliberalize the economy tarian bilateral donor support because of governance included lifting restrictions on smallholder access to issues, severe deterioration in terms of trade, and the cash crops, removing constraints on private participa- worst regional drought on record. The new government tion in all sectors of the economy, and moving toward a has put poverty alleviation squarely in the center of its more liberal external sector policy. Increasing adoption development agenda and is committed to a major struc- of fertilizer and hybrid seed in the smallholder sector, tural adjustment effort over an extended period to combined with expanding private sector participation in reestablish private sector confidence in the economy. production and marketing. resulted in per capita GDP facilitate diversification of the economic base and own- growth of 2 percent a year over 1989-91. ership structure, and achieve a sustainable supply response. Recent Economic Developments During the 1960s and 1970s Malawi's development strategy emphasized infrastructure and estate agricul- Economic management was challenged by external de- ture as prime vehicles for increased production and velopments, including the unprecedented drought growth. Malawi's economy was open, and world market throughout southern Africa in 1992, significant deterio- prices for its major exports (tobacco, tea, coffee, and ration in Malawi's terms of trade, and the bilateral do- cotton) were relatively high, real GDP more than dou- nors' decision at the 1992 consultative group meeting to bled, and real per capita income grew 3 percent a year. withhold all new nonhumanitarian aid because of' The period of strong growth ended in the early 1980s governance issues. Following several years of macro- with the onset of economic problems and external economic stability and positive per capita growth, shocks, including deterioration of the terms of trade, oil Malawi's economy contracted by more than 7 percent crises, disruption of external transport routes through In 1992. The return of normal weather during the Mozambique, and drought. These shocks led to a de- 1992/93 crop season helped facilitate recovery in ag- cline in per capita income and policy setbacks that riculture, allowing overall GDP to grow some 9.3 culminated in 1987 by reversing the openness of the percent in 1993. economy and discouraging private sector investment Af'ter the June 1993 referendum that endorsed the and output. move to multiparty democracy and subsequent steps Malawi embarked on a series of structural adjustment taken by the government, donors agreed to resume eco- programs in response to these shocks that aimeid at nomic aid and financial support at the December 1993 correcting the underlying economic l'undamenitals and consultative group meeting. When the new government removing structural obstacles to growth. Although the took ot'fice in May 1994 it inherited several daunting and early adjustment efforts resulted in several short-lived immediate challenges. Fiscal and monetary discipline periods of economic recovery during the 1980s, the suffered in the months immediately preceding the May government largely failed to effectively address barriers elections, and the situation was aggravated by the sec- to growth that resulted from the bias against smallholder ond drought within a three-year period. As a conse- farmer access to cash crops, discrimination against eth- quence, economic and financial stabilization efforts of nic minorities, expenditure bias against the social sec- the early 1990s were not sustained. tors. and an overvalued exchange rate. As a Economic performance in 1994 was overshadowed consequence, the country continued to suffer from long- by the drought, which contributed to a serious recession. I I8 Malawi Real GDP declined in 1994 compared to a positive nomic activities. This policy package isembedded in the growth rate of 9 percent in 1993. Agricultural output draft fiscal 1996 budget and includes revenue measures, declined by 30 percent mainly on account of a 33 percent expenditure cuts, administrative strengthening of tax decline in smaliholder agriculture. and tariff collection, and strict enforcement of the cash The government had difficulties maintaining its budget through commercial banks and weekly monitor- budget in fiscal years 1994 and 1995 because of the high ing by the treasury. Restoring fiscal discipline combined cost of the political transition, drought-related costs that with continued sales of treasury bills will allow the were much higher than projected, and a depreciation of government to avoid borrowing from the banking sys- the kwacha that was more precipitous than expected. In tem on a net basis this fiscal year. Successful implemen- response to the intensifying fiscal crisis the government tation of the program would help reduce the fiscal deficit adopted a supplementary budget in November 1994 (after grants and excluding drought) to 4.5 percent of supported by administrative strengthening of tax and GDP and reduce inflation substantially by the end of customs collection, expenditure monitoring, andamove calendar 1995. The integrity of the fiscal program de- to a cash budget. However, implementation of both pends critically on limiting the civil service wage bill in revenue and expenditure control measures was ineffec- the short term and implementation of a civil service tive and massive overspending continued across most reform program in the medium term. ministries. As a consequence, the overall fiscal deficit Malawi's central problem is poverty, and poverty (after grants and excluding drought) for fiscal 1995 is alleviation is at the core of its development agenda for estimated at 9.7 percent of GDP, more than double the the 1990s. APresidential Council on Poverty Alleviation target under the supplementary budget. with broad-based participation by NGOs, traditional Failure to control the fiscal program led to excessive leaders, religious groups, and political parties has been borrowing from the domestic banking system, which established to set overall policy direction, mobilize re- more than offset the positive effects from tightening of sources, and sensitize the population to poverty issues the monetary stance through aggressive treasury bill and programs. The government has integrated poverty sales and increased interest rates. As a result, money reduction into its growth strategy through policies to supply grew over 50 percent in fiscal 1995, against a expand employment opportunities by creating a lib- targeted growth rate of 33 percent. Excessive monetary eral environment for private entrepreneurship and in- growth, combined with a cumulative depreciation of the itiative, enhancing agricultural productivity for poor kwacha against the dollar of approximately 250 percent small farmers, ensuring sustainable use of land re- since the kwacha was floated in February 1994 contrib- sources, and expanding human capital through in- uted to a consumer price index increase of 66 percent creased public expenditures for education, health, and between December 1993 and December 1994. This un- other social services. anticipated rise in inflation and the concurrent increase in interest rates have significantly dampened economic Medium-Term Prospects activities and virtually stalled new investnment activities in Malawi. Although Malawi has made progress in deregulating the The government has recognized that rigorous economy, development of the private sector has re- macroeconomic adjustment and stabilization measures mained sluggish, the supply response has not been ade- are required to avoid spiraling inflation and further quate for sustained growth and balance-of-payments downward pressure on the kwacha, rebuild private-sec- viability, and there has been little diversification out of torconfidence in the economy, and preserve the progress the traditional exports of tobacco, tea, and sugar. The made in deregulation and liberalization. Immediate and formal economy remains highly concentrated, and fi- effective measures, supported by external aid re- nancial markets are thin and shallow. Investment re- sources, are necessary to reverse the fiscal deteriora- sponse has been obstructed by official caution and long tion before government can successfully embark on delays in decisionmaking. The trade tax regime has not sustainable structural reforms and poverty alleviation been sufficiently oriented toward export markets on measures. which Malawi's future production and employment The IMF approved a standby in November 1994, and growth will rely heavily. Malawi has since strengthened its program with the Sustainable future growth will depend on increasing view to embarking on a three-year structural adjustment domestic savings to finance a larger share of total invest- program in mid-1995. In February 1995 the government ment. Prerequisites for increased domestic savings in- agreed on a comprehensive set of fiscal, monetary, and clude continued improvements in the public sector exchange measures to prevent a downward economic financial position, higher private savings generated spiral of high inflation, sharp devaluation of the kwacha, through reforms in the financial sector and improved high wage increases, and further depression of eco- profitability of the enterprise sector, and substantial 119 Malawi reduction in transport costs as a result of the reopening spacing services; and supporting the new National Fam- of lower-cost transport routes to the sea through ily Welfare Council to address high population growth Mozambique. rates and population density, and organizing and im- The government's major challenge is to sustain and proving the lot of women. further the process of economic deregulation and facili- Rapid population growth and low agricultural pro- tate participation in the economic process of those eco- ductivity have led to an increasingly unsustainable de- nomic agents who were excluded in the past. A program mand on land and forest resources, shown in growing to fully liberalize smallholder access to cash crops and soil erosion rates. declining soil fertility. widespread inputs is under wav. Land policy reform and public deforestation, increasing scarcity of potable water, and enterprise privatization are in the initial stages of policy overfishing in Lake Malawi. Government policy calls formulation. These programs seek to promote equity; for strengthening management of natural resources, with reduce concentration of ownership in manufacturing, emphasis on indigenous forest management, afforesta- distribution, and finance sectors; and enhance domestic tion, fisheries, and soil conservation, and it is preparing competition and economic diversification, thereby rats- an institutional and policy framework as a follow-up to ing productivity, external competitiveness, and long- its 1994 environmental action plan. term rates of growth. In addition to shortfalls in physical capital accumu- External Debt lation, Malawi's long-term growth prospects are seri- ously constrained by a poor human capital base as Malawi's debt burden is largely official and is the direct manifested in one of the lowest school enrollment ratios result of increased support from bilateral and multilat- in Sub-Saharan Africa. Low education and health levels eral creditors after the external shocks of the 1980s. In have limited the ability of small farmers, particularly contrast to other developing countries, net flows and net women, to respond to incentives and have limited the transfers to Malawi have been strongly positive through- potential for broadening sources of income for the econ- out the 1980s and early 1990s, reflecting the volume and omy. The government has made free primary education concessionality of official flows. the centerpiece of its policy in the development of hu- Debt indicators for Malawi deteriorated sharply in man capital; four weeks after the May 1994 election, all the first half of the 1980s, not only because of the primary school fees and school uniform requirements increase in debt flows, but because of a weakening in were abolished. An improved public expenditure plan- growth and export performance and significant decline ning process is shifting resources to social sectors to in the terms of trade. Debt ratios have improved since accommodate the additional financing requiremenits that 1987 with the recovery of export earnings and the efforts resulted from the 50 percent increase in primary school of creditors to shiftto grants and concessional financing. enrollment rates in 1994. Increasing attention will be In recent years, Malawi has followed a very conserva- given to improving the efficiency and effectiveness of tive policy with regard to long- and medium-term debt expenditures in the social sectors through keener focus- and has contracted mainly concessional loans. The total ing of such expenditures on rural areas where most of the stock of public and publicly guaranteed external debt poor live; on primary education and cost-efficient secon- held by the central government as of end-1994 was dary education, from which the majority of the poor can approximately $1,908 million, including external debt benefit, rather than universities; and on low-cost rural held by the parastatal sector of $98 million. The debt- health centers rather than expensive urban hospitals. GDP ratio reached 147 percent in the drought-affected The government is also committed to strengthening year. Although the ratio is expected to drop with a return family planning activities, including increased popula- to higher GDP levels, it is expected to remain around tion education in school curricula; expansion of child- 100 percent of GDP. 120 Malawi Population mid-1993 (millions) 10.5 Income group: Low GNP per capita 1993 (US$) 200 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 f Investmentto GDOPratio (%) Gross domestic investment/GDP 18.6 19.7 18.8 12.3 16.5 30 Exports of goods and nfs/GDP 24.2 24.8 22.5 16.6 31.2 Gross domestic savings/GDP 12.9 9.7 1.9 1.8 -1.7 2 Gross national savings/GOP 9.1 6.6 -1.1 1.2tf Current account balance/GDP -8.5 -8.0 -18.6 -11.2 -20.3 10 Interest payments/GDP 2.6 1.8 1.6 1.4 2.4 Total debt/GDP 90.0 87.9 91.7 92.3 161.6 0 Total debt/exports 361.2 347.0 402.1 545.7 499.5 99 99 90 91 92 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 |SharesofGDPbysector(%) Agriculture 36.6 34.4 28.3 39.2 30.7 1|0 n-I Industry 18.7 20.9 21.7 18.1 21.2 Manufacturing 12.3 14.1 14.6 11.8 .. Services 44.7 44.7 50.0 42.7 48.1 1985-90 1990-94 1992 1993 1994 50 (average annual growth)I Agriculture 1.3 -0.4 -25.1 53.4 -29.3 Industry 4.9 0.2 2.4 -7.4 5.3 Manufacturing 4.9 -0.8 3.0 -10.5 5.4 Services 3.8 -0.2 0.8 -5.4 0.7 0 99 89 90 91 92 93 94 GDP 2.0 0.6 -7.3 9.3 -7.3 LAgriculture (Mindustry aiServices GDP: EXPENDITURE (% ot GDP) 1985 199 1992 1993 1994 Growth rates of GDI and GDP (%) Pnvate consumption 69.4 74.6 79.5 81.5 87.7 40 General govemment consumption 17.7 15.7 18.5 16.7 13.9 Gross domestic investment 18.6 19.7 18.8 12.3 16.5 30 Exports of goods and nfs 24.2 24.8 22.5 16.6 31.2 2 0 Imports of goods and nfs 29.9 34.9 39.3 27.1 49.4 1985-90 1990-94 1992 1993 1994 (average annual growth) | Prvate consumption 4.2 0.2 -8.7 7.9 -6.9 9 9s 91 93 General govemment consumption 4.7 -4.4 0.7 -3.1 -18.5 .1- Gross domestic investment -0.8 -2.1 -17.8 -20.9 23.5 Exports of goods and nfs -0.3 0.1 -2.9 -5.0 7.7 20 Imports of goods and nfs 4.7 -3.9 -9.3 -21.1 12.6 Gross national product 2.5 0.6 -7.3 9.6 -8.3 10 Gross national income 1.8 -1.2 -12.2 7.3 -7.2 -GDI GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI(%) Domestic prices 35 (% change) 30 Consumerprices 10.5 11.8 22.7 19.7 . 25 Wholesale prices .. .. .. ..20 Implicit GOP deflator 8.9 10.6 18.3 21.4 28.7 15 10 Government finance + (% of GDP) 0 Current budget balance -0.7 -0.2 -4.3 -3.3 -9.8 8 s 0 91 92 93 94 Overall surplus/deficit -6.9 -7.3 -11.6 -8.7 -14.9 -GDP dei. --OCPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 121 Malawi POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development diamond Population 5.1 39| Life expectancy Labor force 2.6 2.6 T mokat recent etimete Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 45.4 per pnmary Infant mortality (per 1,000 live births) 141.6 capita enrollment Child malnutrition (% of children under 5) 27.0 ai Access to sate water (% of population) Energy consumption per capita (kg oil equivalent) 34.8 Illiteracy (% of populalion age 15+) Gross primary enrollment (% of school-age population) 66ACcess to safe water TRADE (millions US$) 1985 1990 19 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 250 412 397 315 367 500 Sugar 26 28 27 16 27 450 Tea 53 47 30 35 31 40D Manufactures 16 28 28 32 32 3os r Total imports (cif) 530 K __ Fuel and energy 200 Capital goods .150 500 Exportpriceindex(1987=100) 84 118 110 94 98 so Import price index (1987=1100) o _ _ _ _ 0 _ _ _ Terms of trade (1987=100) Be 69 90 91 92 93 94 Openness of economy (trade/GDP. %) 54 60 62 44 81 E Exports 0m Imports BALANCE of PAYMENTS 1985 1990 1992 1993 1994_ (millions USS) Current account balance to GDP ratio (%) Exports of goods and nfs 276 447 417 332 383 0 Imports of goods and nfs 331 537 706 541 597 ss U so 91 92 93 Resource balance -54 -90 -288 -209 -214 s| Net factor income -53 -43 -39 -41 -46 Net current transfers 10 -11 -18 30 18 | U Current account balance 9 1 i 2 | Before official transfers -97 -145 -345 -221 -242 A1t After official transfers -72 -64 -227 -143 -130 Long-term capital inflow 23 87 92 150 154 .20 Total other Items (net) 10 -6 20 21 -7 Changes in net reserves 40 -18 114 -29 -17 25 Memo: Reserves excluding gold (mill. USS) 45 137 40 57 Reserves including gold (mill. USS) 49 142 44 62 Conversion rate (locat/US$) 1.7 2.7 3.6 4.5 8.9 EXTERNAL DEBT 195 1990 1992 1993 1994 Structure of exernal debt (%) Export ratIos Long-term debt/exports 281.0 308.3 368.6 516.5 495.3 150 IMF credit/exports 51.6 25.2 21.7 25.8 1.6 Short-term debt/exports 28.6 13.5 11.8 3.5 2.6 Total debt service/exports 38.9 23.7 24.9 22.3 20.0 75 _ PNG GDP ratios aC Prvt. Long-term debtUGDP 70.0 78.1 84.1 87.3 160.2 so _ Off. IMF crediVGDP 12.9 6.4 4.9 4.4 0.5 Short-term debt/GDP 7.1 3.4 2.7 0.6 0.8 Long-term debt ratios Private nonguaranteedtlong-term 0.0 0.2 0.0 0.0 0.0 Public and publicly guaranteed I Private creditorsAlong-term 11.7 4.4 2.6 1.8 1.0 a M 90 91 92 93 94 Official creditorsAong-term 88.3 95.4 97.4 98.2 99.0 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 122 Mali ali is one of the poorest countries in the world, under its structural adjustment program. The underlying M with a 1993 per capita income of around $270. objective of the reform program was to improve the Primary education enrollment rates are among competitiveness of the economy and lay the foundation the lowest in the world, at around 32 percent in for sustained longer-term growth. Overall, the reforms 1994, and basic health services are not widely available. allowed market forces greater play in determining eco- Only about a quarter of its vast 1.2 million square kilome- nomic outcomes and removed some bottlenecks to pri- ters is arable, yet agriculture accounts for around half of vate-sector participation in economic activity. Domestic GDP and three-quarters of export revenues, and provides marketing and prices have been fully liberalized. The a livelihood for close to 80 percent of its population of trade regime has been substantially simplified and lib- about 9.5 million, which is growing 3 percent a year. The eralized with the removal of export and import monop- mainstays of the traditional economy are millet, rice, and olies, a streamlining and reduction of tariff rates, and other cereals, and nomadic cattle raising for domestic elimination of nontariff barriers. The investment, com- consumption. Cotton and livestock make up the bulk of mercial, labor, and procurement codes have all been traditional exports. The modern sector includes gold and revised to make them simpler and more flexible and some light manufactures. Mali has significant potential in remove distortions in the incentives framework. Until agriculture-of anestimated500,O0Ohectaresofpotential end-1993, the prevailing exchange rate policy of the irrigated rice only 50,000 hectares is under cultivation. CFA zone precluded the use of nominal exchange rate Livestock, gold mining, and agroprocessing could consti- changes as a means of achieving real exchange rate tute important sources of sustained longer-term growth. depreciation and improved competitiveness. The focus This potential has been constrained by poor economic was thus on internal adjustment - achieving significant management and development policies and the economy's real exchange rate depreciation by lowering domestic resulting lack of competitiveness. This has been further inflation rates below those of competitor countries and compounded by extremely variable and harsh climatic other trading partners through strict fiscal and monetary conditions, low-productivity traditional technologies, and policies. a poor human resource base. However, the stabilization and These measures improved economic performance adjustment efforts pursued by the government in recent over the adjustment period. Real GDP growth rose from years, coupled with the devaluation of the CFA franc in an annual average of less than 2 percent over the first January 1994, provide an opportunity for Mali to exploit half of the 1980s to about 3 percent between 1988 and more fully its comparative advantage in these areas. 1993. Inflation was kept in check, averaging under 3 Mali's first democratically elected government as- percent. The overall fiscal deficit on a commitment basis sumed office in June 1992. The government has sur- and excluding grants declined from 12 percent of GDP vived severe political and social tensions, but at the cost in 1991 to 9.6 percent in 1993. Despite declining terms of three changes in prime ministers and several cabinet of trade due largely to falls in world market cotton reshuffles. Over the last year, the government has made prices, the current account balance improved from a significant progress in asserting the authority of the state deficit of 14 percent of GDP in 1991 to 13.2 percent of while continuing to pursue the ongoing process of de- GDP in 1993. mocratization. The political climate, however, still re- Despite this improvement in economic performance, mains fragile, and a smoldering Tuareg rebellion in the internal adjustment strategy was unable to achieve Northern Mali remains a source of concern and instability. appreciable improvements in Mali's external competi- tiveness. Industries such as textiles, shoes, plastic, and Structural Adjustment apparel, which flourished in the past, lost their competi- tive edge. and there was little incentive for new invest- Since 1988 the government of Mali has implemented a ment in local production. Mali's already fragile wide range of economic and sectoral policy reforms industrial base was weakened further, putting the sector 123 Mali into a slump. Despite cost-efficiency gains in agricul- toms revenue receipts were about 27 percent lower than ture, cotton production was unable to recover its oper- programmed, partly because of continued customs fraud ating costs, and rice and livestock production remained and lower imports than anticipated. The government has below their full potential. already taken remedial steps. Real growth reached the 2.5 percent projected in the first year after the parity Comprehensive Adjustment change, and it is expected that growth performance will be significantly stronger over the next few years. In January 1994 Mali joined other members of the CFA Structural measures were also implemented as zone in devaluing the CFA franc 50 percent against the planned. Key measures included the June 1994 signing French franc. In line with the parity change, the govern- of a performance contract that for the first time makes ment prepared a policy framework paper for 1994-96 the cotton parastatal. the government, and producers outlining a series of macroeconomic and structural ad- equal partners in decisionmaking in the sector. The justment measures to consolidate and expand the initial contract allows for a 47 percent increase in the floor competitiveness gains. These included tariff changes price of seed cotton to producers in the 1994/95 crop eliminating the "second best" policies that had been year, and raises the share of parastatal profits going to necessitated by the overvaluation of the currency, and farmers from 25 percent to 35 percent. The devaluation, measures to ensure as large a pass-through as possible coupled with recent increases in world cotton prices, has of the gains from the parity change to cotton producers restored the competitiveness of the cotton sector, and to encourage a strong supply response in this key sector. profits for the 1993/94 crop year are estimated at about The government also undertook to maintain the momen- CFAF 20 billion, compared to an originally projected tum of ongoing structural adjustment. Full implementa- deficit of CFAF 4 billion. Other measures included the tion of this strategy is expected to promote private-sector ongoing restructuring of the rice parastatal to focus on development, help generate the levels of growth critical a few key public services such as irrigation services and for poverty alleviation, and increase equity through in- irrigation infrastructure maintenance, while privatizing creased access to basic social services for the poorer all other functions - notably rice milling. A new law segments of the population. provides the legal framework for privatization, and a In February 1995 the government updated and ex- hotel, a textile firm, and some activities of a maritime panded its policy framework paper for the period 1995- company have been privatized. The government has 97. This framework builds on the progress achieved so begun major reforms to remove distortions in education far and reaffirms the government's commitment to resource allocation and use that include redeployment maintaining and improving short-term stabilization of 350 teachers from administrative to teaching posi- gains through continued fiscal and monetary discipline tions, introduction of specific budget lines for primary and deepening and accelerating structural reforms. The education, and increased allocations in the 1995 budget framework provides a more comprehensive package of for teaching materials and maintenance. reforms across all key sectors and includes for the first There is evidence of a strong supply response to the time policies in the important mining sector. parity change. Livestock exports to neighboring coun- tries are now more competitive with imports from the Recent Economic Performance European Union and South America, and the volume of exports through formal channels has more than doubled The first year of the 1994-96 program was successful, since devaluation. Local rice is also now able to compete and all macroeconomic measures were implemented- with imports from Asia without recourse to excessive in particular, wage restraint, which is critical for ensuring tariffs, and exports of vegetables such as potatoes and competitiveness gains are not eroded, was strictly ob- onions to neighboring countries have increased. Indus- served, with civil service wage increases limited to 15 trial activity slowed because of a wait-and-see attitude percent. All macroeconomic targets were achieved and adopted by much of the private sector during the first some were exceeded. The real effective exchange rate months after the devaluation, but a rebound was visible depreciated by about 35 percent in foreign currency during the second semester. In Bamako, in particular, a terms. As a share of GDP, the fiscal deficit on a commit- significant number of small-scale businesses opened, ment basis and excluding grants is estimated at 13.4 including dairies, food processing plants, and soap percent compared to the programmed 15 percent, and the manufacturers. Also two key textile-producing enter- currentaccountdeficitwas 19percent,apercentagepoint prises that had been closed for several years restarted lower than programmed. Inflation as measured by the operations in 1994. It is expected that these initial posi- GDP deflator was within the 35 percent that was pro- tive impacts will strengthen and provide a basis for grammed. While overall revenue targets were met, cus- sustained economic growth. 124 Mali Population mid-1993 (millions) 10.1 Income group: Low GNP per capita 1993 (US$) 270 Indebtedness level: Severely indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%) Gross domestic investment/GDP 19.6 22.4 21.9 21.9 26.5 30 T Exports of gcods and nfs/GDP 20.8 16.9 14.7 15.7 22.3 Gross domestic savings/GDP -14.3 5.7 4.6 6.3 4.7 20 Gross nation3t savings/GDP -7.8 7.7 6.9 8.7 7.6 Current account balance/GDP -26.9 -14.7 -15.0 -13.1 -18.9 '1 H Interest payments/GOP 1.2 0.7 0.4 0.3 0.6 Total debt/GOP 138.9 99.8 93.0 99.6 147.4 0 Total debt/exports 502.8 432.9 449.3 462.4 632.1 ss 89 90 51 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (%J ) (% ot GDP) Agnculture 47.3 45.1 44.6 43.7 42.0 100 T - Industry 14.8 14.0 14.7 15.4 16.1 Manufacturing 8.5 8.2 8.4 8.9 I Services 37.9 40.9 40.7 40.9 41.9 1985-90 1990-94 1992 1993 1994 s0 (average annual growth) Agriculture 9.9 2.1 12.4 -4.9 7.3 Industry 1.6 3.6 5.0 3.7 1.0 Manufacturing 4.4 3 0 3.2 5.4 0.2 Services 2.4 1.4 3.8 2.6 -2.4 | a9 99 90 91 92 93 94 GDP 5.4 2.0 7.8 -0.7 2.4 U Agriculture 1m Industry EServices GDP: EXPENDITURE 1985 1990 1992 1993 1994 (% of GDP) Growth rates of 0D1 and GDP (. Pnvate consumption 100.7 80.8 81.7 82.1 83.4 25 General govemment consumption 13.6 13.5 13.7 11.6 11.9 Gross domestic investment 19.6 22.4 21.9 21.9 26.5 20t Exports of goods and nts 20.8 16.9 14.7 15.7 22.3 Imports of goods and nfs 54.6 33.7 32.0 31.3 44.1 | IS 1985-90 1990-94 1992 1993 1994 (average annual growth) II/ Private consumption 2.6 0.1 10.6 -3.0 -3.5 General government consumption 5.3 -2.0 -1.2 -5.0 -5.7 Gross domestic investment 6.9 4.9 2.0 -0.7 23 9 Exports of goods and nts 5.2 4.3 3.2 8.7 -2.9 go go 99 93 1 Imports of goods and nfs -0.3 -0.8 3.9 -2.8 -3 7 Gross national product 6.1 2.0 7.8 -0.7 1 7 Gross national income 6.1 1.0 5.9 -1.3 1.8 |GD1 - GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 3S (% change) 30 Consumer prices .. .. .. .. . 2 Wholesale prices .. ..20 Implicit GDP deflator 3.3 2.7 1.7 3.0 34.5 5t is Government finance (% of GDP) Current budget balance -0.8 1.3 -1.1 0.1 ' 04 89 90 91 92 93 -4 Overall surplus/deficit -15.2 -8.5 -11.2 -9.6 -13.4 -GDPdet. CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 125 Mali POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development diamond Population 3.0 3.2 Life expectancy Labor force 2.6 2.7 most recent estimate Poverty level: headcount index (% ofpopulation) I GNP Gross Life expectancy at birth 46.4 per ' primary Infant mortality (per 1,000 live births) 157.0 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 48.8 Energy consumption per capita (kg oil equivalent) 20.0 ! Illiteracy (% of population age 15+) 68.0 Access to sale water Gross primary enrollment (% of schocl-age population) 25.0 TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) (millilons US$) Total exports (toD) 176 338 336 342 342 700W Colton 78 169 151 147 155 600 Goldc. 45 62 61 61 Manufactures .. . Total tmports (cit) 469 617 691 644 629 400 Food 141 71 102 90 73 TIM I Fuel and energy 80 56 73 74 73 Capital goods 105 194 201 183 191 200 Export price index (1987=100) 79 112 96 89 92 10 Import price index (1987zl00) 73 108 113 108 i11l Terns of trade (1987=100) 107 104 85 82 83 es 89 90 91 92 93 94 Openness of economy (trade/GOP,%) 75 51 47 47 66 [ lExpors a Imporis BALANCE of PAYMENTS 1985 1990 1992 1993 1994 F_ (millions US$) ICurrent account balance to GDP ratio (Y.) Exportsofgoodsandnts 220 420 410 418 418 0 -- l -1 1 il - Imports of goods and nfs 578 835 892 833 825 |2 8 9 91 1 92 93 94 Resource balance -358 -415 -482 -415 -407 | -4 Net factor income -14 -35 -30 -26 -32 -1 Net current transfers 87 85 94 91 85 + Current account balance .10 ° Before official transfers -284 -365 -418 -350 -354 -r2 - After official transfers -87 -139 -112 -125 -82 1 L4I Long-term capital inflow 58 65 -7 -18 90 16t Total other items (net) -11 126 127 167 87 isU Changes in net reserves 40 -52 -8 -24 -95 |20 Mtemo: Reserves excluding gold (mill. US$) 23 191 308 332 Reserves including gold (mill. US$) 29 198 314 340 Conversion rate (local/lUS$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export ratlos Long-term debVexports 445.6 410.8 428.5 437.2 609.6 100 IMF credit/exports 33.6 12.1 11.3 12.3 15.4 Short-term debt/exports 23.6 10.0 9.5 12.8 7.1 Total debt service/exports 18.1 11.4 7.6 4.6 7.3 75 _ PNG GDP ratios 3 Prvt. Long-term debt/GDP 123.1 94.7 88.7 94.1 142.1 m a Otf. IMF crediVGDP 9.3 2.8 2.3 2.7 3.6 Short-term debt/GDP 6.5 2.3 2.0 2.8 1.7 25 Long-term debt ratios Pnvale nonguaranteed/long-term 0 0 0.0 0.0 0.0 0.0 Public and publicly guaranteed Private creditors/long-term 3.4 08 0.2 0.1 0.1 B 69 90 91 92 93 94 Official creditors/long-term 96.6 99.2 99.8 99.9 99.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 126 Mauritania Ma auritania is a vast country, with a population early years of independence exceeded investment, only of 2 million and a very limited resource base. a fifth of investment by the early 1980s. The consequent Virtually all of its 1.1 million square kilome- expansion of external financing led to a growing and ters is desert, and it faces serious eventually unsustainable level of indebtedness. While environmental degradation from deforestation, over- drought and unfavorable terms of trade contributed to grazing, and cultivation of marginal lands, all of which this poor performance, there was increasing evidence contribute to soil erosion. Its major economic activities that economic strategy and policies were in need of include iron mining in the north, the fishing industry in change. Faced with a deepening crisis, the government and around Nouadhibou, and exploitation of the agricul- adopted. in 1985, a comprehensive Economic and tural and livestock potential in the Senegal River Valley. Financial Recovery Program for 1985-88, which was Earnings from iron ore, which formerly represented the followed by a Consolidation Program for 1989-91. largest source of foreign exchange earnings, have been The adjustment effort was supported by the IMF and declining as demand and prices has fallen on the world IDA. market since the mid-1980s. Fish exports have become Macroeconomic performance improved consider- the predominant source of foreign exchange earnings, ably through 1989. Real GDP growth rose to 3.4 percent generating 54 percent of total export receipts in fiscal a year over 1985-89. The overall consolidated govern- 1994. This sector represents a promising source of eco- ment deficit on a commitment basis, excluding grants, nomic growth, with potential for greater domestic declined from 14.7 percent of GDP in 1985 to 10.6 inputs, though the 1990 and 1992 declines in production percent in 1989. Mauritania's external position also volume of 11.2 percent and 6.0 percent respectively evidenced steady improvement, as food imports de- were worrisome, given the risk of premature depletion clined in response to improved incentives in the agricul- if the resources are not well managed. With livestock as tural sector and favorable weather conditions. As a share a driving force, the primary sector contributes about of GDP, the current account deficit (excluding official one-third of GDP. transfers) declined from 31 percent in 1985 to 14.5 As a result of recurrent droughts and difficult eco- percent in 1989. The number of civil servants was fro- nomic conditions in the rural areas during the last two zen, while public investments were cut from 10.4 per- decades, there has been substantial migration to urban centofGDPin 1985 to 5.5 percent in 1989. Interest rates centers, where about half of the Mauritanian population were positive in real tetms. In parallel with macro- now lives. Rapid urban growth has increased unemploy- economic measures, several key structural reforms were ment and poverty in urban areas. Life expectancy at birth put in place. Project selection and budget procedures is estimated at 52 years; infant mortality is 99.2 per were considerably streng.hened. Price control systems 1,000 live births; and 55 percent of school-age children were liberalized, all import licenses and quotas were attend primary school, while only 34 percent of the abolished, and rice proce:;sing and marketing were pri- population is literate in either Arabic or French. Progress vatized, with the result that the Mauritanian economy in addressing social issues is constrained by population has become more market-oriented. growth of 2.8 percent a year. Per capita GNP in 1993 was $500. Recent Economic Developments Mauritania's economic development through the mid-1980s was uneven and marked by major financial The Mauritanian economy suffered a series of internal imbalances and highly interventionist government poli- and external shocks between early 1989 and 1992 that cies. Despite investment rates as high as 36 percent of had a severe impact on economic and financial perform- GDP in the early 1980s, the long-term rate of growth ance, disrupted economic activity, and slowed its adjust- averaged only 2 percent, slower than that of the popula- ment effort. Unfavorable weather conditions. tion. Moreover, domestic savings, which in Mauritania's institutional bottlenecks, and a difficult sociopolitical 127 Mauritania sitj-tion affected output in agriculture, mining, and Progress in implementing key structural reforms in fisheries. Sharp cutbacks in external financing occurred trade, foreign exchange, pricing, the tax system, public as a consequence of the April 1989 Senegal-Mauritania enterprises, public expenditure, civil service, social sec- crisis and the 1991 Persian Gulf crisis. These factors tor policies, and enhancing the role assigned to market contributed to slippage in economic decisionmaking forces have been key elements in containing inflation and priority setting. Signs of reversal of the reform were and redressing external imbalances. The government obvious: real GDP growth fell to 1.7 percent in 1992 and has fully privatized all commercial banks, restructured domestic financial imbalances re-emerged. The fisher- two joint-venture financial institutions, liquidated the ies sector continued to be an enclave with no linkages development bank, strengthened bank supervision, en- with the rest of the economy. The agricultural sector acted a new nonperforming-loan-recovery law, and es- underwent a significant setback, and poor management tablished a special agency responsible for the recovery and inadequate supervision hampered the attainment of effort, and created a rural credit system based on coop- the 1987-90 banking restructuring program. erative principles. The exchange system was liberalized, The deterioration of the domestic financial position notably through the elimination of prior export authori- was reflected in a weakening balance of payments. The zations and of the preferential exchange rate for work- external current account deficit, excluding official trans- ers' remittances, and the removal of limits on transfers fers. widened from 14.5 percent of GDP in 1989 to 16.6 for invisibles payments. A free market for foreign cur- percent in 1992, owing in part to a drop in fish export rency banknotes and travelers checks was created, and earnings, an increase in imports linked to the public the surrender requirements for foreign exchange receipts investment program, and the development of a new were made more flexible. Government has also raised mining project. The overall consolidated government public utility tariffs to levels reflecting economic and deficit on a cash basis, excluding grants and restructur- financial costs and improved bill collection. Government ing operations, increased from i 1.6 percent of GDP in has either privatized or liquidated several public enter- 1990 to 3.1 percent in 1992. These deficits were fi- prises and eliminated subsidies to all public enterprises. nanced by credit from the central bank and caused an All government monopolies and price controls have accumulation of arrears on external debt, estimated at been abolished. The government has lowered the civil SDR 189.9 million at end- 1992. This, combined with a service retirement age, frozen all recruitment except for swift increase in credit to the agricultural and fisheries the education and health sectors, computerized the civil sectors. led to an expansion in the money supply and service management system, and implemented a com- greater inflationary pressures. petitive examination system for recruitment. Institu- Mauritania has intensified its adjustment effort and tional reform of the fisheries sector has taken longer than structural rel'orm since September 1992. The results expected,withdelaysinstrengtheningsurveillanceover have been encouraging. A substantial adjustment in the fishing activity and privatizing marketing arrange- exchange rate took place in October 1992; the exchange ments. While implementation of the program has led to system has been liberalized, an auction system for im- significant gains, these must be viewed as fragile against port authorizations implemented, and the limits for the background of a still large foreign debt, a gloomy transactions in invisibles eliminated. Progress in stabi- iron-ore and fisheries export environment, and remain- lizing the economy and implementing reforms has been ing severe structural impediments to private sector encouraging. Real GDP growth rose in 1993/94 to an growth and external viability. estimated 4.5 percent. reflecting improved performance in agriculture (10 percent) and miining (21 percent). Despite the 1992 devaluation. consumer price inflation Medium-Term Prospects was contained to 9.3 percent in 1993, below the targeted The Mauritanian economy remains fragile, and its me- 1 3 percent, and declined to 4.1 percent in 1994. Foreign dium-term prospects are constrained by a limited natural exchange reserves increased to 1.3 months of imports and human capital resource base, a high degree of vul- from )0.9 month in 1990). The current account deficit. nerabilitv to exogenous factors such as climatic condi- excluding oft'ficial transfers, declined trom 2 1.5 percent tions and commodity prices, a low revenue base, and a ot GDP in 1990 to an estimated 14.2 percent in 1994. heavy debt service burden. The experience of recent Theconsolidated governmient tiscaldeficitonacoimit- years has made it clear that without macroeconomic ment basis, excluding grants. decreased from 5.4 per- stability and access to sufficient external financing. sus- cent of GDP in 1992 to an estimated 4.3 percent in 1994. tamable growth will remain out of reach. Although the debt burden was relieved by the January The government's macroeconomic objectives for the 1993 Paris Club reschedul i ng, debt service paid in 1993 medium term have been translated into concrete actions - 30 percent of exports of goods and services, after debt and stabilization targets for 1995-97. Over the medium relief- was still burdenso(me- term. the focus will be on continued strengthening of 128 Mauritania public resource management, further enhancement of reforming Mauritania's institutional framework, includ- the enabling environment for private sector investment ing the judicial and regulatory systems; it will reform and growth, and an acceleration in its program to de- the of fisheries sector by introducing a transparent and velop the country's human resources. The key compo- market-related system of access rights, strengthening nents of the program include maintaining price stability surveillance, privatizing marketing and production, and through sustained implementation of fiscal and mone- adopting exit mechanisms for nonviable enterprises. tary restraint, and creating a transparent market-related Other objectives include strengthening financial inter- exchange and international trade system to foster com- mediation and resolving external debt problems, espe- petition and eliminate obstacles to investment and pro- cially eliminating the payment arrears to official and duction. The government also plans to continue private creditors. 129 Mauritania Population mid-1993 (millions) 2.2 Income group: Low GNP per capita 1993 (US$) 500 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%.) Gross domestic investment/GDP 28.9 20.0 20.5 23.4 17.4 30 Exports of goods and nfs/GDP 60.8 46.4 38.8 45.7 43.2 Gross domestic savings/GOP 8.8 5.6 7.2 9.7 9.5 20 Gross national savings/GOP 4.4 0.6 5.6 4.7 6.3 Current account balance/GOP -24.5 -19.4 -14.8 -18.7 -11.2 10 Interest payments/GOP 4.0 3.4 1.6 4.5 3.7 Total debt/GOP 217.4 210.2 179.6 232.6 213.5 o Total debt/exports 353.7 436.9 411.3 482.5 485.7 GDP: PRODUCTION (% Of GOP) 1985 1990 1992 1993 1994 SharesofGDPbysector(%) Agriculture 22.5 29.6 27.4 26.6 .. 100 Industry 32.9 28.8 26.8 30.2 .. I Manufacturing 12.9 10.3 10.9 12.4 . j Services 44.6 41.6 45.7 43.3 .. 1985-90 1990-94 1992 1993 1994 so (avefage annual growth) Agriculture 2.5 5.3 1.8 9.7 5.1 Industry 2.5 2.0 -2.2 7.1 3.9 Manufactunng -2.1 2.3 11.1 5.5 -16.9 Services 3.6 2.8 3.9 0.7 3.4 0 ea a9 90 91 92 93 94 GDP 2.4 3.6 1.8 5.3 4.4 *Agriculture Mtindustry oSsrvices GDP: EXPENDITURE 1985 1990 1992 1993 1994 [Growth rates of GDI and GDP(%) (% of GOP) Prvate consumption 74.9 83.3 82.3 79.4 80.3 20 General govemment consumption 16.2 11.0 10.5 10.9 10.2 Gross domestic investment 28.9 20.0 20.5 23.4 17.4 10 Exports of goods and nfs 60.8 46.4 38.8 45.7 43.2 Imports of goods and nfs 80.8 60.7 52.1 59.4 51.1 0 - - - \ _ \ 99 / sYc \8 9~~2 93\ 1985-90 1990-94 1992 1993 1994 .10 (average annual growth) Prvate consumption 3.7 1.7 5.3 -8.4 9.5 z20 General govemment consumption -4.4 0.8 -2.1 0.9 -2.3 Gross domestic investment -7.0 3.2 15.9 19.9 -22.5 Exports of goods and nfs -0.4 -3.8 -10.2 9.6 -13.0 Imports of goods and nfs -3.0 -5.3 1.7 -8.3 -14.8 Gross national product 3.0 3.4 1.6 3.5 6.1 40 Gross national income 2.8 2.9 0.6 -2.7 8.9 -GDI -*GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 change of GDP defitor and CPI(% Domestic prces 14 (% change) 12 Consumer prices 6.6 10 1 93 | 10 Wholesale prices Implicit GDP deflator 10.3 3.0 9.9 4.9 6.3 Government finance 2 (% of GDP) 0 c i Current budget balance -5.4 -1.6 -1.1 -5.3 -2.4 89 go 91 92 93 94 Overall surplus/deficit -14.7 -7.3 -5.4 -11.0 -2.4 -GDPdet. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 130 Mauritania POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Delopment dsmond Population 2.5 2.5 Life expectancy Labor force 2.8 3.1 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 51.9 per pnmary Infant mortality (per 1,000 live binlhs) 99.2 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 65.8 Energy consumption per capita (kg oil equivalent) 104.6 Illiteracy (% of population age 15-) 66.0 Access to safe water Gross primary enrollment (% of school-age population) 55.0 TRADE (millions US$) 1985 1990 1992 1993 1994 ExportandImportlevels(mill.USS) Total exports (fob) 378 422 414 400 384 450 Iron 10 28 15 19 ie 4 Fish 224 206 245 221 208 3r. Manufactures 300 Total imports (cif) 334 405 424 375 329 250 Food 9 l 2 0 o 2 Fuel and energy 4 3 4 5 3 s Capital goods 82 82 ill 100 59 0 Export prce index (1987=100) 94 110 124 105 117 to Import price index (1987=100) 95 106 101 100 ill 0 | Terms of trade (1987=100) 99 104 122 105 105 as as 9 91 92 ' 94 Openness of economy (trade/GDP, %) 142 107 91 105 94 OExports i Imports BALANCE of PAYMENTS 1965 1990 1992 1993 1994 (millions US$) Current account balance to GDP ratio (#) Exports of goods and nfs 415 473 462 433 424 o Imports of goods and nfs 552 619 620 563 504 -2 . so 90 91 92 93 94 Resource balance -137 -146 -157 -130 -79 4 Net factor income -52 -59 -67 -69 -61 . Net current transfers -24 -14 27 -1 1 *8 Current account balance -10 Before official transfers -167 -198 -177 -177 -115 -12 After official transfers -86 -131 -104 -94 -18 .14 Long-term capital inflow 63 5 19 35 31 .5 Total other items (net) 1 89 82 37 -19 -18 Changes in net reserves 22 37 3 22 5 -20. Memo: Reserves excluding gold (mill. US$) 59 54 61 45 40 Reserves including gold (mill. US$) 63 59 65 49 44 Conversion rate (local/US$) 77.1 80.6 87.0 120.8 123.6 EXTERNAL DEBT 1986 1990 1m 1993 1994 Siucturoofextsmalndebt(%) EYPOrt ratios Long-term debtlexports 317.4 372.8 359.0 429.3 450.9 100 - IMFcreditlexports 10.9 14.3 11.1 13.9 15.9 Short-term debt/exports 25.3 50.1 41.1 39.4 18.8 Totaldebtservice/exports 24.3 30.3 16.2 27.4 23.9 oPNG GDP ratios * PM. Long-term debt/GDP 195.1 179.2 156.8 206.9 198.2 so olO. IMF credit/GDP 6.7 6.9 4.9 6.7 7.0 Short-term debt/GDP 15.6 24.1 17.9 19.0 8.3 Long-term debt ratios Private nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0. . . Private creditors/long-term 9.7 5.3 4.7 0.9 0.4 t o 90 9' 92 93 94 Official creditors/long-term 90.3 94.7 95.3 99.1 99.6 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 131 Mauritius auritius is a country of three islands in the the balance of payments averaged 4.2 percent of GDP, M Indian Ocean with a land area of 1,865 square both indications of the government's prudent financial kilometers and a 1993 population of about 1. I management. Inflation averaged 9.4 percent over the million growing at I percent a year. Mauritius same period, declining to 4.6 percent in 1992, compared became independent in 1968 and has since been a par- with about 13 percent in 1989/90. liamentary democracy. Ethnic and political diversity Performance in 1993 was mixed. GDP growth re- contributes to the country's vitality and entrepreneurial mained strong at 5 percent, slower than the average of spirit. Since independence Mauritius has evolved from recent years due to inclement weather. Savings and a low-income, agriculture-based economy with a GNP investment were also strong at 24 percent and 30 percent per capita of about $300 (1970 dollars) to a middle-in- of GDP, respectively. However, following an average 20 come diversified economy with a GNP per capita of percent increase in public sector wages in July and the about $3.030 in 1993. During the 1970s growth was elimination of subsidies on flour, rice, and sugar, infla- spurred by suga,r production, which provided almost 20 tion rose to 10.5 percent. The government took steps to percent of GDP and over half of export earnings. Diver- contain the fiscal deficit (excluding grants) at 2 percent sification into manufacturing and tourism led to a of GDP, and the current account deficit at below 3 reduction in the role of the sugar sector to 6 percent of percent of GDP. GDP and about 23 percent of export earnings in 1993. Industrial output comes primarily from an export proc- Poverty and Social Indicators essing zone created in 1976, which accounted in 1993 t'or 12 percent of GDP and almost 56 percent of gross Over the last decade, Mauritius' population has wit- export earnings. Tourism expanded from less than I nessed a doubling of its per capita income and higher percent of GDP and less than 3 percent of foreign earn- social standards, and has now the standards of living of ings in the 1970s to 5 percent and 19 percent, a middle-income developing country. Standards of nu- respectively. in 1993. Economic growth and sound pub- trition, health care, and general education exceed those lic expenditure policies helped improve social of most neighboring countries and are comparable to indicators: in 1992. life expectancy was 70 years, infant other middle-income countries'. The benefits of the mortality was 17 per 1,000, and the entire population rapid increase in per capita income and full employ- had access to sat'e water. ment have reached the vast majority of Mauritians. Preliminary results of a household expenditure survey Recent Economic Developments conducted in 1991 document the broad distribution of the benefits of growth. The government has also put in With the exception of a relatively short period (1979-81) place extensive social safety mechanisms to alleviate ot sluggish growth largely due to external shocks and poverty. misguided fiscal policies, Mauritius' record is one of During the coming years, the Mauritians face the solid growth and prudent financial ananagement. Its challenge of adapting smoothly to the demands of an strong pertormance has been made possible by a liberal emerging industrial society. Three areas of concern have economiic environnient, including an open exchange and been identified as deserving priority action: a lagging trade regime, incentives for foreign private investment, supply of housing compared with the increase in family strong resource mobilization, conservative public ex- incomes, unsatisfied demand for labor-saving home ap- penditure policies, prudent credit expansion, and good pliances and child care services by the growing propor- governance. Over I 968-93. Mauritius's real GDP grew lion of women in the labor force, and a potential threat at an average rate of 5.3 percent and exports grew 6.1 to the financial integrity of the social security and pen- percent a year in real terms. The fiscal deficit averaged sion systems as the population gets progressively older. 2.0 percent of GDP. and the current account deficit of The first issue is being addressed by the introduction of 132 Mauritius changes in property market regulation to permit a Sugar production and export will remain critical to greater private role in providing housing. The second is agriculture in the foreseeable future. In the past, the being tackled through the reduction in import duties on government encouraged food self-sufficiency, rather home appliances and incentives for private investment than diversification into alternative export crops, de- in child care services. The third issue is being tackled spite the fact that many of the existing food crops cannot through a thorough review of the actuarial charac- be produced economically given the climatic condi- teristics of the demographic transition and its likely tions. The best way of reconciling legitimate concerns future impact on the social security and pension systems relating to food security with efficiency considerations to set a basis for reforms. is to ensure that scarce resources, particularly land and labor, are devoted to crops that yield the highest returns. Key Development Issues For example, Mauritius already successfully produces cut flowers for the European market and could grow Mauritius's past export-led growth largely relied on its tropical fruits for the same market. ability to deploy underutilized labor resources, and its In industry, notwithstanding rapid growth over the external competitiveness took advantage of low relative past decade, the export processing zone is highly con- wages and the availability of the limited skills required centrated in apparel, and thus fragile. Outside garments, by first-stage industrialization. It also benefited from there are as yet few significant export industries. The preferential arrangements with the European Union, only significant nontextile exports are watches and which guaranteed high prices for its sugar under the clocks (3 percent of exports), pearls, precious and semi- Sugar Protocol of the Lome Convention, and duty-free precious stones (1.6 percent), and canned tuna (1.5 entry for its textile exports. Since 1988, however, the percent). The government has encouraged diversifica- economy has faced increasing constraints as the country tion through fiscal incentives such as the rapid write-off neared full employment and the labor market tightened. of capital invested in the new priority areas. There are In the face of labor shortages. explicit linkage of wage some indications that new investments are taking place settlements - determined by annual tripartite negotia- in precision assembly industries such as mechanical, tions among the government, the private sector, and optical, and electronic assembly operations, and in labor unions - to past inflation rather than productivity "brain-service exports" such as slow-turnaround data gains builds up inertia in the system and makes macro- entry, software, translation, digitizing of maps and economic management more difficult. Rising inflation drawings, and consulting. In addition to investing in (11.8 percent during 1988/90 and 7.5 percent over 1991- developing labor skills, further government measures 93) is starting to erode external competitiveness, par- should reduce red tape and provide information to po- ticularly critical for an open economy such as that of tential investors on conditions in export markets, includ- Mauritius, with foreign trade representing over 105 per- ing restrictions that may affect specific industries, and cent of GDP in 1993. In addition, general trade liberali- on environmental norms and guidelines. zation under the GATT Uruguay Round raises doubts Mauritius has emphasized low-impact, high-spend- about the future of Mauritius's market preferences. ing tourism by promoting an upmarket profile aimed at Mauritius is thus at a critical juncture in its develop- increasing expenditure per tourist and per tourist-night. ment, as it aspires to enter the ranks of newly industri- Expecting high sustained growth in the sector in the alized economies. The shortage of labor and uncertainty 1 990s, the government granted licenses for the construc- about the continuance of its market preferences mean tion of a number of hotels - which came on the market that Mauritius has to acquire a new edge over competi- when demand growth slowed down because of the de- tors to maintain its growth momentum. The main chal- clineingrowthofarrivalsfromFranceandSouthAfrica, lenge facing Mauritius is its ability to compete with increases in air fares and hotel costs, and a shift by countriesofferinghigherlaborskillsandproductivityat tourists to informal accommodation. With an annual similar or even lower wage levels. Mauritius could increase in arrivals of 10 percent over 1992-93, demand increase productivity by improving technology and re- has all but caught up with capacity. allocating labor to higher productivity sectors. This im- Mauritius has begun to develop offshore banking and plies increased emphasis on technical education and regional trade as new sources of growth by establishing manpower training, and more flexible labor markets, an offshore banking center (1988) and a free port (1992). including increased labor mobility between the public The authorities expect to attract investment funds and private sectors. A start toward modernizing the through the banking center along with other flows of financial system needs was made in 1992 with the elimi- valuable financial, commercial, and industrial intelli- nation of credit ceilings and the consolidation of 12 gence, while providing business opportunities for the incentive regimes into three categories. country's legal and accounting professions. By Decem- 133 Mauritius ber 1992 seven banks were operating in the center and and re-export free of domestic taxes. The benefits of the accounting for about 15 percent of total commercial free port activities are expected to be mainly in the jobs banking assets. The free port will offer facilities for and incomes generated through value added in goods storage, warehousing. bulk-breaking, minor processing, reconditioned for re-export. 134 Maufitius Population mid-1993 (millions) 1.1 Income group: Upper-middle GNP per capita 1993 (US$) 3,030 Indebtedness level: Less indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%) Gross domestic investment/GDP 23.5 30.4 28.6 30.5 31.7 40 Exports of goods and nfs/GDP 53.5 67.4 62.1 61.0 60.9 Gross domestic savings/GDP 21.6 23.0 25.2 24.2 23.3 3 Gross national savings/GOP 15.3 25.3 28 4 26.5 24.4 2 Current account balance/GDP -8.2 -5.2 -0.2 -4.2 -7.3 10~n Interest payments/GOP 2 6 1.6 1.8 1.4 . Total debt/GOP 58.4 37.9 34.1 30.4 310 Total debt/exports 108.8 54.4 52.5 48.1 49.0 88 89 90 91 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector(%) (% of GDP) Agriculture 15.3 12.3 11.1 9.9 9. 14 9- _ Industry 29.2 32.2 33.2 33.4 32.4 Manufacturing 20.6 23.5 23.2 23.3 21.7 Services 55.5 55.6 55.8 56.7 58.2 1985-90 1990-94 1992 1993 1994 so (average annual growth){ Agriculture -1.2 1.5 6.5 -2.5 4.0 8 1 9 3 9 Industry 10.1 7.0 7.3 6.2 9.5 Manufacturing 10.4 7.7 6.4 10.0 9.5 Services 6.8 5.1 6.5 5.5 3.1 B ° GDP 7.4 4.9 6.2 5.2 3.3 rlAgriculture oi1ndustry LuServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP() Prvate consumption 68.2 67.3 65.0 65.9 66.2 30 General govemment consumption 10.2 9.8 9.7 9.9 10.5 25 Gross domestic investment 23.5 30.4 28.6 30.5 31.7 Exports of goods and nfs 53.5 67.4 62.1 61.0 60.9 20 Imports of goods and nfs 55.4 74.8 65.5 67.4 69.3 1985-90 1990-94 1992 1993 1994 10 (average annual growth) Private consumption 11.4 4.8 4.8 6.2 6.5 s General government consumption 5.5 1.1 4.6 -3.2 0.4 0 Gross domestic investment 10.5 5.4 8.6 11.1 2.2 92 93 94 Exports of goods and nfs 12.7 4.6 3.4 5.0 6.1 ampons of goods and nfs 18.3 4 3 2.9 7.3 8.2 Gross national product 7.9 5.3 6 4 4.7 4.8 1 Gross national income 8.5 4.5 6 5 3 0 4.1 -GDI 6-0DP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices I 1 (% change) 12 Consumer prices 6.7 13.5 4.6 10.5 7.3 lo Wholesale prices i 8 Implicit GDP deflator 7.5 10.3 5.3 9.0 9.6 4- Government finance 21 (% of GDP) o Current budget balance -1.8 2.3 2.9 2.8 2.0 1 89 90 91 92 93 94 Overall surplus/deficit -6.0 -2.3 -2.1 -2.0 -3.1 -GDPdol. --CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified 135 Mauritius POVERTY and SOCIAL 1985-90 1990-94 Development diamond* (annual growth rates) Life expectancy Population 0.8 1.1 t Labor force 2 4 1.9 most recent estimate Poverty level: headcount index (% of population) 5.2 GNP Gross Life expectancy at birth 70.5 per primary Infant mortality (per 1,000 live births) 17.4 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) 100.0 Energy consumption per capita (kg oil eqluivalent) 391.4 Illiteracy (% of population age 15+) Access lo safe water Gross primary enrollment (% of school-age population) 106.0 TRADE 1985 1990 1992 1993 1994 Export and import levels (mill. USS) (millions UJS$) Total exports (fob) 430 1,201 1,292 1,336 1,509 1.800 Sugar 186 351 364 359 370 1.600 Textiles 177 642 703 777 868 1,400 Manufactures 212 768 841 920 1,034 1,200 Total imports (econ 526 1.611 1,626 1,559 1,766 1xt uc Food 87 176 189 268 254 am 11tfl Fuel and energy 74 130 124 126 134 2 00 Capital goods 72 423 368 400 424 400 Exportpriceindex(1987=100) 71 104 104 108 i11 200 Import price index (1987= 100) 72 98 90 84 8 Termst f trade (196rs100) 98 107 115 128 126 08 89 90 91 92 93 94 Openness of economy (trade/GDP,%) 100 142 128 128 130 p ZExports [climports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 Cretacutblnet D ai 16 (millions S$)urrent accout balance Exports of goods and nfs 576 1.724 1,913 2,003 2,048 --. Imports of goods and nfs 597 1.915 2,017 2,213 2,330 89 89 0 1 93 94 Resource balance -21 -191 -104 -210 -282 Net factor income -45 -23 1a1 -7 -7 Net current ItransferS -22 82 87 79 42 . Current accourit balance4 Before official transfers -88 -132 -6 -138 -247 - After official transfers -74 -107 13 -136 -245 ~ Long-term capital inflow 26 137 20 73 71 . Total otrher itema (netl 67 203 13 123 253 Changes in net reserves -19 -232 -46 -60 -79 .8 - Memo: Reserves excluding gold (mill. US$) 30 738 820 757 748 Reserves including gold (mill. US$) 42 761 841 781 771 Conversion rate (local/'US$) 15.4 14.9 15.6 16.7 18.5 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export raltios Long-term debt/exports 71.4 50.2 46.9 42.6 43.7 *oo IMF credit/exports 28.5 1.2 0.0 0.0 0.0 Short-term debt/exports 8.8 3.0 5.6 5.5 54 7 Total debt service/exports 24.3 8.6 8 1 6 1 6.5 7o PNG GDP ratios FM Prvt. Long-term debt/GOP 38.4 34.9 30.5 26.9 27.6 -0 HOff. IMF crediUGDP 15.3 0.9 0.0 0.0 0.0 Short-term debl/GDP 4.7 2.1 36 3.5 3 4 1 25 Long-term debt ratios Prvate nonguaranteedJlong-term 3.6 16.5 20.7 18.9 20.3 Public and publicly guaranteed Private creditors/long-term 21.9 12.9 12.5 11.8 9.7 8s 8 s Official creditorsAong-term 74.5 70 6 66.8 69.3 70.0 - The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete 1 36 Mozambique ozambique turned a new page in its history in control fell from 69 percent to below 5 percent of total 1994 as the successful conclusion of the 1992 production in 1993. In parallel with price adjustments, peace agreement set the stage for long-lasting the government has opened domestic and external trade, peace and political stability. The first multi- allowing increased competition among traders and per- party elections were held in October and were won by mitting direct trading between enterprises. Price and the Frelimo party. The results were endorsed by all marketing distortions, however, prevail within the agri- parties concerned, and a new government was estab- cultural sector in some important commodities, such as lished. An 85 to 90 percent turnout of registered voters cashews, with negative impact on overall export earn- at the elections signaled a clear commitment to peace by ings and incomes for thousands of family farmers. the Mozambican people. In addition. a new army, con- Various foreign exchange windows, including donor sisting of both Renamo and government troops, was import support funds, were unified in April 1992 into a formed following the demobilization of about 80,000 market-based system to improve foreign exchange allo- soldiers in 1994 under the supervision of the United cation. With the exception of a small negative list, im- Nations. The restoration of peace since the signing of port licenses are now being issued automatically, and all the peace agreement in October 1992 has led to the foreign exchange is channeled through the banking sys- resettlement of 3.2 million displaced people and the tem. Under the new system the official exchange rate is return of over I million refugees from neighboring determined by market forces. The parallel market pre- countries. mium has remained at 10 to 20 percent, down from 150 Mozambique's performance must be assessed against percent in 1990. the background of immense distortions that charac- After the 1991 Privatization Act the government de- terized its economy when the government's rehabilita- creed that all state enterprises - with the exception of tion program was launched in 1987. The advantages the strategic enterprises that provide essential public goods country inherited at independence in 1975 -a good and services-were to be either privatized, transformed basic infrastructure and export base - had disappeared into commercially oriented public enterprises, or liqui- after long years of rigid central planning and a vicious dated. By the end of 1994 about 360 small and medium internal war. The consequences were a sharp fall in enterprises and another 19 large ones had been privat- Mozambique's GDP, a high level of indebtedness - the ized through either direct sales or leasing arrangements. debt stock was equal to 45 times exports - and extreme To speed privatization of large enterprises, the govern- poverty affecting two-thirds of the population. ment has simplified procedures and made the process more transparent by publishing winning bids. Reform of The Economic and Social Rehabilitation Program some utility parastatals, including the electricity, tele- communications, and petroleum companies, has also In the initial period of adjustment starting in 1987 pri- commenced, albeit at a slow pace. The post office and ority was given to reducing price and exchange distor- telecommunications parastatals were transformed into tions, removing administrative controls, rehabilitating commercially oriented public enterprises in 1993. The state enterprises, and narrowing domestic and external future of the railways and the airline, two major loss- imbalances. making parastatals, is still under discussion. Significant progress has been achieved in improving Financial sector reform has also been initiated to financial incentives through price and trade liberaliza- improve banking services and stop the transfer of finan- tion. Administered consumer prices are now limited to cial resources to loss-making parastatals. Since inde- wheat and wheat flour, rents, utilities, and transport pendence the banking sector was dominated by the Bank fares. Fixed prices for manufactured products were first of Mozambique, which operated both as the central bank replacedbyasystemofex-postreviewandsubsequently and as a commercial bank. In December 1991 new liberalized. Overall, the share of output subject to price central banking and general banking laws were enacted. 137 Mozambique andt in early 1992 the Bank of Mozambique was sepa- instruments, and establishing a properly functioning rated into Banco Commercial de Mozambique and the financial sector are seen as critical to addressing the central bank. Emphasis is now being given to strength- underlying causes of macroeconomic instability. ening the central bank's monetary control, supervision, The reduction in external imbalances has been con- and foreign exchange management. Measures to in- strained by the key role assigned to imports under crease the competitiveness of the commercial banks Mozambique's 1987 Economic and Social Rehabilita- focus on rapidly restructuring state-owned commercial tion Program. Increasing the supply of capital and con- banks, in particular Banco Commercial, which still ac- sumer goods, largely financed by donor grants and counts for 50 percent of bank lending and has a large concessional loans, has been essential to rehabilitate nonperforming portfolio. Business strategy plans and infrastructureandprovidetheincentivegoodsnecessary the first external audits for the Banco Commercial and to complement reforms financial incentives. Given the Banco Popular de Desenvolvimento have been com- low base of exports of goods and services, the current pleted, and the government plans to privatize both account deficit before grants averaged 55 percent of banks. GDP over 1990-94. Because of strong donor support, Progress in reducing domestic and external iinbal- the current deficit after grants fell from 29 percent of ances has been limited. This is a long-term objective. GDP in 1987 to 21 percent of GDP in 1994. given the nature of those imbalances and the already low One major achievement of the Economic and Social level of per capita income, which effectively precludes Rehabilitation Program has been to restore economic drastic cuts in aggregate consumption. F7iscal policy has growth. GDP growth averaged nearly 10 percent over aimed at expanding the revenue base through tax re- 1987-89 despite the security situation. Growth slowed form and improvements in tax administration; revenue in the next two years to an average of 1.7 percent as the collections as a percentage of GDP were raised from 1992 drought reduced GDP by 2.4 percent, security 18.7 percent of GDP in 1987 to 20 percent in 1993. At deteriorated, and external aid fell. With improved secu- the same time recurrent expenditures have been con- rity, better weather, partially restored infrastructure, and tained through cuts in enterprise subsidies, while in- continued structural reform, GDP growth accelerated to vestment has been largely financed by external grants. 19.3 percent in 1993 and to 5.4 percent in 1994. Growth In 1994, however, fiscal imbalances worsened signifi- was led primarily by the recovery in agricultural produc- cantly due to increased expenditures associated with tion, which increased by 21 percent and 5 percent, the demobilization, elections, an(d democratization respectively, reflecting the end of the 1992 drought and process (5.7 percent of GDP); declining customs reve- the massive resettlement of family farmers in rural ar- nues (2.4 percent of GDP); and a rapid increase in eas. Transport and construction also fared well as road public investments (4.3 percent of GDP). As a result the and rail links were rehabilitated and private construction deficit after grants widened trom 5.1 percent of GDP resumed. However, manufacturing production contin- (22.2 percent before grants) in 1993 to 8.2 percent ( ued to decline for the fifth consecutive year due to 29.6 percent) in 1994. widespread competition from smuggled imports, inade- Monetary policy has aimed at reducing itflation by quate provisions for exporters, and delays in privatizing absorbing excess liquidity and improving the efficiency large industrial firms. of credit utilization, but the government has had little success in stabilizing the economy. Net domestic bank financing of the budget decreased from I 16.5 percent of GDP in 1986 to 0.9 percent in 1993, and net repayments Although data are scarce, social indicators for Mozam- equivalent to 1.4 percent of GDP were made in 1994. bique continue to show high rates of mortality and low However, failure to control credit expansion through levels of life expectancy. Life expectancy in Mozam- credit ceilings on commercial banks has led to rapid bique is only 47 years. The under-five mortality rate in mnnetary expansion. Consequently. annual inflation re- Mozambique is 283 per 1,000, well above the regional mained at 45 percent over 1991-93 and accelerated to average of 179 per 1,000; the maternal mortality rate is 71 percent in 1994. An important source of macro- 1,100 per 100,000 live births relative to a regional economic instability that contributes to continued high average of 690. Many children are born underweight inflation, is leakage in the banking sector: "other items due to maternal malnourishment and about 30 percent net" (mainly representing transitory accounts within the of all urban children are stunted. Compared to average banking system) are large and have been growing rap- adult literacy of 45 percent among the United Nations- idly. Inadequate control of these accounts has resulted designated least developed countries, only 33 percent of in a rapid expansion of the bankino sector's assets- adults in Mozambique are literate. The government in- and consequently of money supply. Hence, strengthen- creased budgetary allocations for health and education ing the central bank. developing appropriate monetary by 19 percent in real terms from 1991 to 1993. Although 138 Mozambique expenditures in the social sectors fell in 1994, due the While remaining high relative to exports, imports are need to finance extraordinary items related to the de- projected to decline in 1995 and grow slowly thereafter. mocratization process, the budget for 1995 once again This will reflect theend of demobilization, elections and targets real increases in social sector spending. other special programs in place last year, reduced de- A large proportion of Mozambique's population is pendency on food aid, and a gradual recovery of import poor. About 60 percent of all rural households and 30 substitution industry. However, most available external percent of urban households fall below a poverty line aid is absorbed by debt-service payments and donor-fi- defined in terms of a minimum food consumption bas- nanced investment projects, leaving a relatively small ket. Minimum wages for urban unskilled workers have margin of funds to finance needed imported inputs -- fallen in real terms. Under the government's poverty such as petroleum - basic consumer goods, and capital alleviation strategy 70,000 poor urban households are goods not financed under investment projects. The share covered by a direct income transfer scheme. Ultimately, of import support funds over total external financing however, a resumption of growth will be necessary to decreased visibly in 1994, while that of project financ- reduce both urban and rural poverty. ing increased. Since funds deriving from exports will be limited in the medium term, it is essential that adequate levels of import support funds be made available to finance private-sector foreign exchange needs. Mozambique's long-term objective under its Economic Over the long term Mozambique's dependence on and Social Rehabilitation Program is to repair the dam- external aid should decrease. Exports are projected to age of the past and establish conditions for sustained rise by over 14 percent a year in current dollars from economic growth and poverty reduction. Key elements 1995 to 2002. This increase is expected to stem from of the government's national reconstruction strategy restored traditional commodity exports such as cashews, include drastically reducing domestic inflation from 71 sugar, and tea as state firms and transport services are percent in 1994 to 24 percent in 1995, rationalizing and privatized, expanding nontraditional manufacturing ex- prioritizing public expenditures by adopting sectoral ports with the gradual improvement in the incentive investment programs and shifting budgetary allocations framework, and the development of new gas fields, from military to social sectors, reforming customs and electricity, and mining resources. Foreign investment is introducing a VAT system, and accelerating privatiza- expected to become the driving force behind the pro- tion of major loss-making parastatals and the restructur- jected rise in exports: authorized investments reached ing the commercial state-owned banks. $870 million by September 1994. Overall, the current The macroeconomic program for 1995-97 envisages account deficit before grants is projected to fall from 59 a substantial reduction in domestic and internal imbal- percent in 1994 to below 30 percent by the year 2000, ances. Key elements of the program include reducing the and Mozambique's dependence on external aid could fiscal deficit after grants from 8.2 percent of GDP in fall from $67 per capita in 1993 to the regional average 1994 to 3.7 percent of GDP in 1995 - and the fiscal of $34 in per capita terms in 1990 prices by 2002. deficit before grants from 29.6 percent to 21.3 percent. The government aims to increase budgetary net repay- External Debt ments to the banking system to ensure adequate levels of credit for the private sector, and strengthen credit Despite rapid export growth and import substitution policies to keep monetary growth within targets, and envisaged under this favorable scenario Mozambique reduce the current account deficit before grants by con- will need continued debt rescheduling through the taining imports and establishing an appropriate incen- 1990s. Current debt relief is generous, but even after tive framework for exports. rescheduling, debt service amounts to 25 to 30 percent Mozambique's overriding challenge in the external of exports. For debt rescheduling to be a long-term sector is to achieve financial viability and reduce de- solution, a 60 to 70 percent reduction in bilateral debt pendence on external aid. This will entail maintaining would have to take place. Debt cancellation agreements the level of imports required for growth, rapidly expand- have been reached with several of Mozambique's bilat- ing exports, and reducing its high external indebtedness. eral creditors. 139 Mozambique Population mid-1993 (millions) 15.1 Income group: Low GNP per capita 1993 (US$) 90 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%/) Gross domestic investment/GDP 9.1 45.9 53.2 59.7 60.2 70 Exporls of goods and nfs/GDP 5.6 15.9 23.6 21.3 23.2 60 Gross domestic savings/GOP -4.1 -3.9 1.4 7.2 4.7 so Gross national savings/GOP -8.0 -7.7 -5.8 4.0 .. 40 Current account balance/GOP -17.2 -53.1 -57.5 -56.2 -59.3 20 Interest payments/GDP 0.7 0.8 1.3 2.8 3.2 10 Total debt/GOP 105.5 330.5 403.5 358.7 351.9 0 Total debt/exports 1,472.8 1,594.9 1,432.9 1,416.4 1,514.1 93 94 GDP: PRODUCTION (% of GOP) 1985 1990 1992 1993 1994 Shara of GDP by sctor (%) Agriculture 49.1 44.5 35.2 36.0 32.8 100 Industry 10.8 16.4 15.4 13.1 12.3 Manufacturing .. .. Services 40.1 39.1 49.3 50.9 54.9 1985-90 1990-94 1992 1993 1994 s0 (average annual growth) Agriculture 4.2 2.4 -11.3 21.3 5.0 Industry 9.1 -2.4 -5.1 -6.7 -3.3 Manufacturing .. .. Services -0.6 15.0 9.0 22.8 11.9 0 88 88 90 91 92 93 94 GDP 6.5 7.3 -0.9 19.2 5.4 *Agriculture mindustry EServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rat of GDIand GDP (%) Pnvate consurnption 83.1 83.7 79.5 76.0 75.3 30T General govemment consumption 21.0 20.2 19.1 16.7 20.0 20 Gross domestic investment 9.1 45.9 53.2 59.7 60.2 25/ Exports of goods and nfs 5.6 15.9 23.6 21.3 23.2 20 Imports of goods and nfs 18.8 65.7 75.5 73.8 78.7 1985-90 1990-94 1992 1993 1994 (average annual growth) 10 Pnvate consumption 7.3 3.0 -6.5 18.2 -0.5 General govemment consumption 4.6 9.8 8.9 5.8 28.9 5 Gross domestic investment 3.4 8.6 -0.7 27.7 0.1 Exports of goods and nfs 6.5 7.2 -1.2 3.4 7.3 0 Imports of goods and nfs 5.4 1.8 -5.9 8.5 4.1 | 1 90 91 92 93 94 Gross national product 7.0 7.9 -2.3 21.8 6.0 Gross national income 6.2 7.6 -3.0 22.0 5.8 |-GD1 -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change ofGDPdsfltor and CPI (%) Domestic prices 40 (% change) so Consumer prices .. 47.0 45.5 42.2 40 Wholesale prices .. .. * 130 Implicit GDP deflator 33.3 34.1 53.4 46.6 50.8 20 Government finance t (% of GDP) 0 Current budget balance -12.5 -3.3 -3.1 -1.4 .. 89 90 91 92 93 94 Overall surplus/deficit -18.5 -29.2 -28.6 -22.2 - -GDP def. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 140 Mozambique POVERTY and SOCIAL 1985-90 1990-94 Development diamond, (annual growth rates) Life expectancy Population 0.9 2 1 Labor force 1.9 2.0 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 46.5 per pnmary Infant mortality (per 1,000 live births) 145.6 capita enrollment Child malnutrition (% of children under 5) Access to sate waler (% of population) 21.6 Energy consumption per capita (kg oil equivalent) 43.4 Illiteracy (% of population age 15+) 67.1 Gross primary enrollment (% of school-age population) 60.0 Access to sale water TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) (millions US$) Total exports (fob) 77 126 139 132 150 1200 Groundnuts 12 15 18 8 3 Fish 33 43 55 69 63 12000 Manufactures BOD. . . . 0 Total imports (cif) 424 877 855 955 1,064 Food 121 155 199 172 248 - Fuel and energy 75 95 78 81 .. _ Capital goods 49 252 261 309 325 Export price index (1987=100) 92 131 160 159 11 Import price index (1987=100) 72 122 118 131 . o Terms of trade (1987=100) 128 108 135 121 .. 88 89 90 91 92 93 94 Openness of economy (tra de/GDP,%) 24 82 99 95 102 i Esports Imports BALANCEofPAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GDP ratio (%) Exports of goods and nfs 143 229 304 312 341 46 - - - B Imports of goods and nfs 481 948 970 1,083 88 89 90 92 93 94 Resource balance -339 -719 -666 -771 -814 Net faclor income -117 -190 -214 -238 -248 -50 Net current transfers 16 143 141 185 192 .55 Current account balance 5 Before official transfers -440 -767 -739 -824 -870 *54 After official transfers -301 -318 -239 -321 -306 -56 Long-term capital inflow -50 -83 -155 -107 -22 Total other items (net) 330 408 434 382 385 .8 Changes in net reserves 21 -6 -40 46 -57 -60 Memo: Reserves excluding gold (mill. US$) 41 207 Reserves including gold (mill. US$) 41 207 Conversion rate (locab/US$) 43.2 929.1 2,432.7 3.722.7 5,918.1 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure ofexternaldebt(%) Export ratios Long-term debtlexports 1,388.0 1,400.6 1,252.0 1,256.1 1,454.8 100 ....................... IMF credittexports 0.0 24.7 48.2 51.0 54.3 1IL°Il Short-term debt/exports 84.8 169.5 132.7 109.4 5.0 Total debt service/exports 23.0 18.9 13.8 20.6 30.5 75 0 PNG GOP ratios m Prvt. Long-term debt/GDP 99.5 290.3 352.6 318.1 338.1 5 - KOtf. IMF credit/GDP 0.0 5.1 13.6 12.9 12.6 Short-term debt/GDP 6.1 35.1 37.4 27.7 1.2 25- Long-tern debt ratios Private nonguaranteed/long-term 0.4 0.5 0.4 0.4 0.3 0. Public and publicly guaranteed Private creditorsAong-term 27.3 13.9 3.8 2.3 1.9 so 88 90 9 92 93 14 Official creditors/long-term 72.2 85.6 95.9 97.3 97.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete 141 Niger N iger is a large landlocked country of 1.27 mil- links with Nigeria, which exerts considerable economic lion square kilometers 601) kilometers from the influence through long-standing trading and cultural closest ocean. Its population is estimated at 8.7 bonds. This influence heightened during the 1980s as million -- about half of which is less than 15 Nigeria's competitive position was bolstered by steady years old -in 1994, growing at about 3.3 percent a year, depreciation of the naira. which is above average for Sub-Saharan Africa. Nearly Niger exhibited the features of a typical resource- 90 percent of its population is concentrated in the 12 poor Sahelian country until the uranium boom raised the percent of its land area considered arable. Rainfall is mining sector's share of GDP from 6 percent in 1975 to limited and often irregular. while soil tertility is low and 13 percent in 1980. The collapse of the uranium boom declining, due to intensive use. As a result, Niger's revealed serious structural deficiencies engendered by fast-growing population is becoming one of the poorest the public sector's excessive involvement in production in the world. Per capita GNP declined by a yearly aver- and resource allocation. The deflationary strategy Niger age of 4.5 perce,.t since 1980 to reach $270 in 1993. The adopted to address these problems ran into serious dif- country's social indicators are among the lowest in the ficulty during a protracted political transition. Revenues Sahelian countries. Life expectancy at birth of 45 years declined, due in part to the increased informalization of is one of the lowest on the continent. Infant and child the economy and weak tax administration, and expendi- mortality rates are high. The adult literacy rate is only tures, mostly public sector wages, proved hard to curtail. 14 percent (9 percent aniong women), and the primary Public investment focused on infrastructure and con- school enrollment ratih is less than 30 percent. struction projects, while agricultural investment en- Subsistence agriculture has traditionally dominated countered serious problems. Recurrent expenditure the economy, with millet and sorghum taking up 80 favored personnel and transfer payments over opera- percent of the cultivated area. Livestock also provides tions and maintenance, to the detriment of infrastructure an important source of incomile and export receipts. Ex- and basic public services. The recent deepening of the cept during the Sahelian drought periods. Niger has been adjustment strategy to include the January 1994 devalu- self-sufticient in staple food production. The discovery ation of the CFA franc opens up new avenues to solve of large uraniumii deposits in the late 1960s triggered the current crisis. development ot an important mining sector, which ex- panded rapidly under highliv favorable conditions in the world market durinlg the late l1)70s. Uraniumii became Structural Adjustment Niger's principal toreign exchange earner, amounting to Adjustment efforts in Niger began in 1983, and were 70 percent of exports and a major source of government supported by IDA and the IMF, bilateral donors, and revenues (around 12 perceni). As a result, Niger went continuous Paris Club and London Club debt reschedul- through a period ot' rapid growth with the public sector ing until major slippages occurred in 1990. In 1991 the taking a dominant role in the modern economy. The government began an internal adjustment package that uranium boom ended in 1981 when prices plumimleted had very limited results. In September 1993 internal and Niger's market share decreased. The formal sector adjustment efforts were expanded to include a 24 per- now accounts for around 27 percent of GDP (of which cent cut in public-sector base salaries, subsequently 7 percent is mining) and comlprises a relatively inei't'i- lowered to 13 percent under union pressure. Donor cient public sector and a small modern private sector in support for adjustment restarted after the CFA franc rapid decline until recently. owing to the lack of coIll- devaluation. but subsided late 1994, given weak pro- petitiveness of the Nigerien econtiomiyl and "fraudulent" gress. timid structural reforms, and a stabilization pro- imports from Nigeria. Niger has an open economiy, with gram that went off track with declining government imports and exports ot goo(ds and nontinancial services revenues (especially customs) and a ballooning wage exceeding 30) percent of (GDP. There are strong trade hill. 142 Niger Structural reform has been a special challenge in the liberalization efforts have been pursued with the elimi- face of resistance, particularly from students and labor nation of export taxes, and of licensing on cotton ex- unions. Reform has focused on areas where policy ports, and imports of rice, cigarettes, and edible oil. changes can have the greatest impact on the budgetary Since the National Conference in November 1991, and balance of payments positions: public resource political and social agendas transfixed Nigerians and management, including public investment program- crowded out concerns about adjustment and other eco- ming; civil service, parastatal, and trade reform; noinic issues. Recently a political crisis developed into macroeconomic management, and improving improved protracted social unrest and labor militancy. Following supply response through an agricultural policy, labor the January 12. 1995. legislative elections, a new gov- market reform, private sector development, and ex- ernment has been installed. Time will tell whether the panded delivery of education and health services. new political platform drawn from the elections could Progress in structural adjustment has been mixed. support a more stable future government. The January 1994 devaluation was expected to result in a reallocation of resources to the tradables sector Recent Economic Developments through the provision of price incentives. This has hap- pened in the liberalized sectors yielding expanded out- Despite lags in its adjustimient program, policy changes puts and exports in livestock, cowpeas, and rice. since tile CA ftranc devaluation have yielded some However, in other sectors, the shift of resources to more positive results in Niger. General economic activity has productive uses needs to be strengthened by accompa- improvedL witil a 4 percent real GDP growth in 1994, nying structural reforms. compared to 1.4 percent in 1993. as a result of a good The public sector continues to dominate economic rainy scason that boosted agricultural production, in- and social infrastructure, and a rolling three-year invest- creased land use and crop yields, and increased liberali- ment program has been put in place that emphasizes the zation in pricing and trade. Inflationary pressures directly productive sectors. development of human re- remain, however, structural reform and stabilization sources, and infrastructure rehabilitation. Public invest- have been weak, and there has been protracted social and ment, which slowed with the accumulation of external political turmoil. The benefits of the devaluation ac- arrears and the lack of counterpart funds, improved in crued mainly because of price pass-throughs in agricul- 1994 with the resumption of aid inflows after devalu- ture. Production and exports of major commodities ation. From 9.2 percent of GDP in 1991, domestic in- (cowpeas. livestock, hides and skins) increased, and vestment fell to 5.7 percent in 1993. and then improved import substitution took place for rice, cement, and to 9.8 percent in 1994. construction items. Efforts to jump-start the business Civil service reform is lagging and recruitment is cycle by liquidating government arrears to enterprises largely uncontrolled. The government's attempts to con- and restrainedJ fiscal and monetary policies. met with trol the wage bill through salaries while tolerating over- modest results largely due to lack of government action. staffing of the civil service and parastatals has proven Structural reforms to increase supply response were ineffective. The parastatal reform program included effective in agriculture and trade, but were delayed for measures to encourage private investment and restruc- privatization and public enterprise reform, and labor ture the banking system, but progress has been weak. policy. The government has reformulated its rural develop- Gross domestic investment improved from 5.7 per- ment strategy to improve the efficiency of its interven- cent in 1993 to 9.8 percent in 1994. However, less than tions in this sector and limit their budgetary impact. The adequate progress in reducing external arrears and lack sectoral investment program has been largely reoriented of counterpart funds have resulted in lackluster public to emphasize quick-yielding small-scale projects, investment performanice (4.8 percent versus 4.2 percent farmer participation, and infrastructure rehabilitation. in 1993). Persistent public finance imbalances are a The operations of the cereals marketing and storage root cause of Niger's crisis. Tax revenues declined in agency have been limited to managing a security stock, 1994 by 32 percent below program targets despite nu- and its price stabilization role eliminated. Subsidies on merous discretionary tax changes, and budgetary ex- agricultural inputs are being curtailed to expand their penditures remained high despite attempted availability and limit the budgetary drain. Price and containment. The revenue shortfall reflects mainly market liberalization and good rainfall have helped raise poor customils revenue mobilization. The wage bill is agricultural output in 1995. projected to reach 98.7 percent of the 1994 tax reve- Expected private-sector development and labor mar- nues. ket reforms have not materialized, but progress was The government enacted a tariff reform eliminat- achieved on structural reforms in education and health ing nontariff barriers on rice, cotton fiber, cigarettes, under the government's 1994-2000 Health Plan. Trade and edible oil, eliminating export taxation and de- 143 Niger creasing tariffs. External trade responded well to Development Issues these changes, albeit slowly. Export volume increased overall by 0.5 percent, and import volume fell 5.9 Niger faces many constraints to its long-term develop- percent, but sizable price effects (78.5 percent for ment. It has a slim natural resource base of fragile and exports and 106.9 percent for imports) yielded a 13.7 degrading arable land, low rainfall, and periodic percent deterioration in Niger's terms of trade, which drought; a very weak human resource base; high factor translated into a further deterioration of external cur- and input costs; and overdependence on a single export rent account balance to -7.5 percent of GDP as against - uranium. Its earlier interventionist economic policies -0.9 percent of 1993. and significant anti-export bias impeded broad-based With price decontrol, and after the initial three development. Since 1981 plummeting uranium prices months of devaluation, inflation accelerated quickly to prompted chronic fiscal imbalances, and inadequate a cumulative rate of 41.9 percent in August, but positive revenue generation and an uncontrolled wage bill have developments in agricultural production tempered infla- saddled Niger with mounting budget and payment defi- tion, which fell to 40.6 percent in December 1994. cits and rapidly rising debt service. 144 Niger Population mid-1993 (millions) 8.6 Income group: Low GNP per capita 1993 (US$) 270 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Invetmentto GOP ratio(%) Gross domes.ic investment/GDP 15.3 8.1 5.4 5.7 .. 20 Exports of goods and nfs/GDP 21.0 17.0 14.2 12.8 .. Gross domes:ic savings/GDP 6.1 4.0 1.8 1.3 Gross national savings/GDP -1.0 -0.2 -1.2 -1.7 . 0 Current aCCOLunt balance/GDP -19.2 -11.8 -7.4 -7.3 -14. 9Ilfimmfffffm Interest payments/GDP 2.9 0.9 0.6 1.0 1.2 Total debt/GDP 83.9 73.4 70.5 76.8 112.5 0 Total debUexports 379.3 471.0 499.7 574.3 681.4 90 93 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 ShareaofGDP bysector(%) Agriculture 36.7 35.3 38.8 38.5 100 Industry 20.9 16.2 17.9 17.9 Manufacturng 7.1 6.6 6.5 6.5 1| Services 42.3 48.6 43.4 43.6 (average annual growth) 1985-90 1990-94 1992 1993 1994 o0 Agriculture .. .. -7.4 0.7 Industry .. .. -5.0 2.5 Manufacturing .. .. Services .. .. -6.0 1.8 0 8 I9 90 91 92 93 94 GDP 1.5 -0.3 -6.5 1.4 3.9 | Agriculture mIndustry iJServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Pnvate consumption 78.8 81.0 81.2 82.1 . General govemment consumption 15.0 15.0 17.1 16.6 Gross domestic investment 15.3 8.1 5.4 5.7 .. Exports of goods and nfs 21.0 17.0 14.2 12.8 40 Imports of goods and nfs 30.1 21.1 17.8 17.3 20 1985-90 1990-94 1992 1993 1994 11\/ I (average annual growth) i°_ Private consumption -0.7 0.5 -1.8 1.6 1.4 93 94 General govemment consumption 2.2 1.9 11.1 -1.3 -8.9 |20 Gross domestic investment -0.6 -6.9 -44.1 7.3 78.6 Exports of goods and nfs -0.3 -6.7 -19.0 -3.1 -4.2 t0 Imports of goods and nfs -7.9 -5.4 -6.8 -3.8 -3.5 | I Gross national product 1.8 -0.4 -6.5 1.4 3.8 40 Gross national income 0.9 -1.6 -5.6 0.7 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 ChangeofGDPdeflatorandCPI(%) Domesticprices as35 (% change) 30 Consumer prices -0.9 -0.8 -4.5 -1.2 25 Wholesale prices .. ..20 15 Implicit GDP deflator -1.9 -7.3 1.1 -0.1 30.9 10 Government finance 0 (% of GOP) -.s 97Ne-9 3 94 Current budget balance .. -3.1 -5.4 -6.2 -7.1 1' Overall surplus/deficit .. .. -9.6 -10.1 -11.2 -GDPdei. -*-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 145 Niger POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 NDvelopment diamond- Population 3.1 3.4 Life expectancy Labor force 2.4 2.6 most recent estimate G Gr! Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 46.9 per primary Infant mortality (per 1,000 live births) 122.0 capita enrollment Child malnutrition (% of children under 5) Access to sate water (% of population) 59.4 Energy consumption per capita (kg oil equivalent) 37.9 Illiteracy (% of population age 15+) 71.6 Access to safe water Gross primary enrollment (% of school-age population) 29.0 TRADE (millions US$) 1985 1990 1992 1993 1994 -lxportandImportvels (mill. USS) Total exports (fob) 251 275 265 236 450 Other metals 214 222 190 160 .. 400 n,a-. . . .. 350 Manufactures 300... .. . Total imports (cif) 354 384 266 241 250 Food 91 34 28 28 200 Fuel and energy 28 23 28 25 .. 150I Capital goods . .. 109 88 D Export price index (1987= 100) 92 94 96 69 50 Import price index (1987=100) .. 94 56 149 Terms of trade (1987=100) 100 172 46 .. BS 90 91 92 93 94 Openness of economy (trade/GDP,%) 51 38 32 30 .. I jExports tmimporls BALANCEofPAYMENTS 1985 1990 1992 1993 1994 __ _ (millions USS) Current account balance to GDP ratio (/) Exports of goods and nts 298 372 315 282 245 o Imports of goods and nfs 473 559 415 378 351 290. 68 s 91 9i1 92 94 Resource balance -175 -187 -100 -96 -106 Net factor income -42 -58 -34 -32 0 4 Net current transfers -59 -49 -40 -34 . 6 Current account balance .8 Before official transfers -276 -293 -174 -163 -230 l . After official transfers -64 -109 -37 -19 -129 A2 Long-term capital inflow 49 22 58 -41 57 I Total other items (net) 18 109 -8 51 -14 LI Changes in net reserves -3 -22 -13 9 -B 6 Memo: Reserves excluding gold (mill. US$) 136 222 225 192 Reserves including gold (mil. USS) 140 226 229 196 Conversion rate (local1US$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 structure of external debt (%) Long-term debt/exports 323.7 409.2 452.3 517.1 645.9 10 IMF credit/exports 24.6 22.0 18.5 17.5 23.2 Short-term debt/exports 31.1 39.8 28.8 39.7 12.2 75 Total debt service/exports 33.8 25.3 15.8 31.4 30.7 | PNG GOP ratios I Prvt. Long-term debtVGDP 71.6 63.7 63.8 69.1 106.6 50 _ on. IMF credit/GDP 5.4 3.4 2.6 2.3 3.8 Short-term debt/GDP 6.9 6.2 4.1 5.3 2.0 Long-term debt ratios Prvate nonguaranteed/long-term 19.3 16.5 13.7 11.8 9.6 Public and publicly guaranteed ao _ 9 Pnvate creditors/long-term 16.5 7.3 0.1 0.1 0.1 8 s 92 93 94 . Oflicial creditors/long-term 64.3 76.2 86.2 88.1 90.4 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing. the diamond will be incomplete. 146 Nigeria N igeria is the largest country in Sub-Saharan The oil booiii of the mid- to late 1970s financed Africa, with some 20 percent of the region's massive increases in public investment. These were de- population. Its wealth of natural and human signed to raise the economy's productive capacity and resources - including major oil and gas depos- human capital. and to heal the wounds of the civil war its, a vibrant private sector, and a large labor force - that ravaged Nigeria in the late 1960s. But many of the endow it with considerable potential for growth and investments were undertaken without sufficient atten- development. When Nigeria became independent in tion to their economic viability. In addition, shifts in the 1960 it inherited institutions and processes that have terms of trade, together with excessive government evolved into robust professional associations, an in- spending, undermined the nonoil export base in cocoa, quisitive press, a cultural commitment to political and groundnuts, and cotton, and raised the prices of non- economic freedom, and a competent bench and bar. But tradables. When oil revenues fell in the aftermath of the it also inherited ethnic and regional tensions that re- decrease in oil prices and rising international interest flected the colonial design of its borders and rates in the early 1980s, the government, instead of constituencies. cutting its expenditures. increased borrowings abroad to In recent years, Nigeria has undergone a series of sustain them. As a result, foreign debt accumulated and attempts to replace military with civilian leadership. The sizable arrears on trade payments emerged. In late 1983 transition timetable, first announced in 1986, was sup- a new military government introduced across-the-board posed to be completed by the end of 1992. A presidential budgetary cuts and administrative restrictions on im- election was held in June 1993, but the result was voided ports and foreign exchange transactions. Although the by the then-military government. An interim govern- government succeeded in reducing domestic and exter- ment headed by a civilian assumed power in August of nal imbalances, it failed to address the economy's struc- that year, but survived only four months until November tural weaknesses: low agricultural productivity, an 1993, when it was replaced by the current military uncompetitive manufacturing sector, significant trade government. A constitutional conference is expected to distortions, and a cumbersome regulatory framework. submit, in the course of 1995, its recommendation for a Uneven implenmenitation notwithstanding, the measures new constitutional framework and a timetable for a exacted a heavy economic toll and proved to be politi- return to civilian rule. cally unsustainable. Petroleum production constitutes about 34 percent of Nigeria's GDP, over 97 percent of total exports, and 80 Adjustment Efforts 1986-1993 percent of budgetary revenues. Its vast reserves of natu- ral gas are only beginning to be exploited. Agriculture The governm1ent that came to power in mid-1985 de- employs two-thirds of the labor force and accounts for clared its intention to move from "austerity alone to 36 percent ofGDP. Ninety percent of agricultural output austerity with structural adjustment." With a further originates from food crop production, which is largely collapse in oil prices adding urgency, in 1986 the gov- based on small-scale farming. Yams, cassava, and grains ernment adopted a far-reaching structural adjustment are the main food crops, and cocoa, palm oil, rubber, program that combined exchange rate and trade policy groundnuts, and cotton are the principal cash crops. reforms aimed at revitalizing the nonoil economy with Productivity is low but holds considerable scope for stabilization policies designed to restore price stability large gains through increased irrigation, improved tech- and balance of payments equilibrium. The adjustment nology, and intensified extension services. Manufactur- program emphasized downsizing the public sector and ing accounts for about 7 percent of GDP. The service improving the efficiency of public asset management. Im- sector, dominated by wholesale and retail trade, ac- port licenses and the agricultural marketing boards were counts for the remaining 23 percent of GDP. eliminated, price controls were lifted, and deregulation of 147 Nigeria the banking system was initiated. The restructuring of cations erratic, hindering private sector activity. Even domestic production and the liberalization of the incen- more critical. Nigeria's unstable macroeconomic poli- tive regime led to a resurgence of agriculture and manu- cies and political uncertainty have increasingly discour- facturing. aged investors. Although some reforms were sustained over 1986- Much-needed financial sector reforms began under 93, others were implemented unevenly. All suffered the adjustment program but were frequently reversed. from the vagaries of an increasingly erratic macro-eco- Although interest rates and spreads were deregulated, nomic environment. Successive cycles of contraction- they were periodically subjected to moral suasion by the ary and expansionary policies -with their attendant authorities to mitigate their rise. Credit ceilings have effects on prices and economic activity - rocked the only recently been phased out, but sectoral allocation economy. From late 1986 to end- 1987. fiscal and mone- guidelines remain. tary policies became reasonably tight. However, in re- Until recently, there has been a proliferation of sec- sponse to political pressures, they turned expansionary toral banks and other nonbank financial institutions that in 1988, only to reverse themselves a year later when the fall outside the purview of central bank supervision, inflationary consequences of this policy direction be- regulation, and credit allocation guidelines. Financial- came painfully evident. Increased international oil sector reforms included new legislation, which led to the prices associated with the 1990 Persian Gulf crisis fu- adoption of Basle standards for new prudential guide- eled higher spending, which continued following their lines, and to stricter supervision and provisioning re- subsequent collapse. Mirroring earlier periods, Nigeria quirements. Within the banking system. new entrants recorded large overall fiscal deficits, which by 1992 aiming to secure foreign exchange allocations from the reached 10 percent of GDP. This trend continued in central bank at preferential rates mushroomed, and seri- 1993, with the fiscal deficit increasing further to 17 ous financial distress emerged in established t'inancial percent of GDP. Driven by the need to finance a rising institutions, with classified loans accounting last year fiscal deficit, monetary policy became increasingly' lax for over one-third of total bank credit. While the central - the money supply increased by 33 percent in 1991, bank and the National Deposit Insurance Corporation 55 percent in 1992, and 51 percent in 1993, and average have taken limited actions toward a few small banks inflation by' 13 percent. 45 percent. and 57 percent. with nonperforming loans, their eventual disposition respectively. and financing to restructure banks in need remain un- Exchange rate reform was at the core of the structural clear. The authorities have yet to adopt a comprehensive adjustment program. Although the specific modalities strategy for distress resolution. Meanwhile, the federal and its implementation varied over the adjustment pe- government has divested most of its equity participation riod, the reform facilitated a cumulative depreciation in in commercial and merchant banks. the real effective exchange rate of about 80 percent The adjustment program also included public enter- between September 1986 and the end of 1992. The prise reform. Eighty-nine mostly small enterprises have financing of the fiscal deficit through the Central Bank been privatized -mostly through public offers and of Nigeria over 1991-93 led to rapid depreciation of the deferred public offers - on the Nigerian Stock Ex- naira. With foreign exchange reserves nearly depleted in change, but the planned privatization of several large early 1993, the authorities switched back to a system of enterprises has been put on hold. The commercialization rationing of foreigin exchange. 1y' the end of the year, program, on the other hand, has failed. Eleven parasta- the premiunm on the f'ree market had risen to 100 percent tals were slated for full commercialization, and in some above the official exchange rate. Although initial trade cases, performance contracts (including ten-year corpo- reforms reduced the cascading of protection that had rate plans) have been signed, although virtually no pro- encouraged assembly type operations, some of the ad- gress has been made with the partial commercialization justment program's first-round tariff reductions -and of the electric utility or the full commercialization of the the pruning of the import prohibition list - were later oil and telecommunications companies. Institution- rolled back. building efforts, increased autonomy, and the creation The government encouraged private sector activities of appropriate regulatory frameworks have stalled, by simplifying the regulatory environment, reducing while service delivery has continued to deteriorate, rais- limitations on foreign investment, cutting corporate tax ing operating costs for users. rates, and introducing a debt-equity conversion pro)- Public expenditure management has deteriorated gram. Yet the private sector continues to face cumber- sharply since the mid-1980s. Increased off-budget some regulations and approval processes that raise the spending and continued financing of nonviable invest- cost of doing business Ongoing difficulties with public ment projects have been the main causes of eroding utility management haxe made the provision of critical fiscal discipline. For example, the temporary revenue infrastructure services such as power and telecommuni- windfall from the rise in international oil prices in 1990 148 Nigeria led to the reemergence of large-scale government spend- justment program, particularly the abolition of price ing, financed through recourse to central bank credit and controls at the factory gate and of agricultural marketing diversions of revenues outside the purview of the statu- boards, together with the large depreciation of the real tory, budgetary, and accounting framework. Spending in effective exchange rate, produced results. In contrast to real terms on the social sectors had contracted sharply an average decline of 2 to 3 percent between 1980 and before the adjustment program. and these lower spend- 1986. real GDP grew by about 5 percent a year between ing levels were maintained in per capita terms through- 1987 and 1992, primarily reflecting a recovery in agri- out the adjustment period. culture and manufacturing. Some of Nigeria's earlier anti-export bias in manufacturing disappeared under the Recent Economic Developments adjustment program, and producers switched from im- ported to local inputs. The assembly-based manufactur- In 1994 the new government, instead of tackling the ing sector, which depends on imported inputs and had causes of the mounting economic crisis in the expanding been shielded from competition and market signals. fiscal deficit, mismanagement of public resources, and contracted during the adjustment era. Following a shift half-hearted implementation of structural reforms, at- in relative prices in favor of the rural sector, the produc- tempted to suppress its symptoms by centralizing all tion of traditional food crops and cash crops increased, foreign exchange transactions, maintaining an increas- and agricultural output expanded 4 percent a year on ingly overvalued official exchange rate, setting up com- average: Nigeria now spends one-fifthi of what it spent mittees to ration foreign exchange to the private sector, in 1986 on food imports. and capping interest rates significantly below prevailing However, overall economic growth has slowed down inflation levels. In mid-1994 a major political challenge in recent years in response to the general worsening in by the oil workers' union and prodemocracy movements macroeconomic policies, falling to 1.5 percent in 1993. led to a prolonged strike in the petroleum industry. In 1994 recorded nonoil merchandise exports fell by 44 Although the strike only affected crude oil exports mar- percent and GDP growth stagnated. Per capita GDP and ginally, it had a dramatic impact on domestic fuel sup- consumption are estimated to have fallen by about 2.6 plies and commercial activities. In October the percent in real terms in 1994 and by a cumulative 1.1 government effected a 300 percent increase in domestic percent between 1991 and 1994. fuel prices, which brought retail prices to about two- Inflation has fluctuated widely since 1986. reflecting thirds of international levels (net of taxes). With external policy variations. In 1986, despite a 70 percent depre- debt service payments unilaterally capped at $1.8 billion ciation of the exchiange rate, satisfactory monetary per- against due amounts of over $4.5 billion, debt service formance kept inflation at 16 percent. While intlation arrears on the external debt continued to mount and decelerated in 1987, the expansionary 1988 budget reached $9.6 billion at the end of 1994. Following the boosted prices by 55 percent. Inflation moderated once pattern of the previous three years, against a budget again, as tight fiscal and monetary policies were pursued target of a small surplus, Nigeria ended the year with a in 1989, falling below 7 percent in 1990. Recent expan- budget deficit of 10 percent of GDP, mostly financed sionary fiscal and monetary policies caused inflation to through recourse to central bank credit. rebound. By end-1994, with the parallel market pre- Rapidly worsening economic conditions in 1994 led mium above 350 percent, end-of-year inflation is esti- to government reassessment of its policy direction. In mated to have reached close to triple-digit levels. January 1995, a new budget of "guided deregulation" The benefits of growth were unevenly distributed at with some significant policy corrections was introduced. best, with a growing share of public resources being Included among these were a renewed promise of a tight channeled off-budget to special interest groups. The fiscal and monetary stance, a free market for foreign overall incidence of poverty declined in the growth exchange for all except some government transactions, a interval between the mid-1980s and the early 1990s, but more liberal environment for foreign investors, and the there is also strong evidence of a worsening of income intention of turning over the management of some public distribution and the situation of the poorest of the poor. enterprises to private operators. However, the new Although the adjustment program revived economic budget reaffirmed the continuation of interest rate ceil- growth, this was not able to compensate for the huge ings, as well as of commercialization plans for key public drop in purchasing power associated with the collapse enterprises, already tried unsuccessfully in the past. of international oil prices. With GDP growing at 5 per- Moreover, it called for a suspension of the privatization cent a year and population at 3 percent, per capita program. Only modest progress has been achieved on income grew at 2 percent over 1987-92. Continuing that improving transparency and accountability. growth rate would take about 30 years for Nigeria to Despite difficulties in implementation and over- recover its peak living standard achieved in 1981. In real spending, the policies incorporated in the structural ad- per capita terms, consumption and income are now little 149 Nigeria higher than they were in the early 1970s, before the oil While some women play a dynamic role in political boom. The urban middle class, primarily civil servants and economic life in parts of the country, women gener- and workers in import-substituting industries, has con- ally tend to be seriously disadvantaged, particularly in tinued to bear the cost of adjustment. rural areas. Legal, cultural, and social barriers limit their access to land, credit, farming inputs, technology, and support services and constrain their earning capacity. Poverty and Social Indicators - They spend long hours on low-output, physically de- Economic mismanagement and negative external manding activities such as water and fuelwood trans- shocks contributed to reducing GNP per capita from port, manual crop processing, and headloading of farm $1,160 in 1980 at the peak of the oil boom to $300 in produce, in addition to their responsibilities for house- 1993. As a result, the incidence of poverty increased hold and family maintenance tasks. They are more likely significantly. One-third of Nigeria's population is con- than men to be illiterate and poorly nourished, and sidered poor, with about 10 percent. some 10 million women tace extreme health risks because of frequent people, classified as extremely poor. In real per capita pregnancies starting at a young age. terms, consumption and income are now no higher than they were in the early 1970s. Basic social indicators place Nigeria among the 20 poorest countries world- wide. Infant mortality rates are around 85 per 1,000 live As in much of Sub-Saharan Africa. Nigeria's key envi- births, half of all children aged 2 to 5 show signs ot' ronmental problems are soil degradation. water con- persistent malnutrition, and only about two-thirds of the tamnination, and deforestation. Many of the problems are relevant age group are enrolled in primary schools directly related to rapid population growth, which has down from 90 percent in the early 1980s. reduced the natural resource base. Traditional bush-tal- Nigeria has recently adopted comprehensive and far- low farming systems are land-intensive but sustainable sighted education, health, and population policies that and compatible with the environment as long as popu- give preference to the promotion of health and education lation remains in check. But with the rising population. services at the primary over the tertiary level, provide farmers cultivate exhausted soils, and their incomcs access to universal primary education free of charge, decline. Worsening poverty engenlders demand f'or more encourage cost recovery measures in health care, and children to help families survive on the land, wilich II aim to improve the health of women and children turn increases the pressure on the environiment in a through birth spacing. However, without a commensu- vicious circle. Moreover. Nigeria is the world's largest rate improvement in management of an increase in and flarer of natural gas. a reallocation of budgetary provisions, notably for sal- The government has taken some initial steps toward ary levels, supplies, and maintenance over capital ex- redressing Nigeria's environmental probleims. A na- penditures, prospects for reversing the decline in tional environmental policy has been formulated, and enrollments, quality of services, and utilization rates state-level agencies have been set up to coordinate en- remain poor. vironmental activities. Legislation has been enacted Nigeria's public sector lacks transparency and ac- regulating effluent limitation and industrial wastes and countability. Pervasive mismanagement robs the econ- requiring environmental impact assessments, but en- omy of resources that otherwise might be used for forcement remains weak. The government is also incor- growth and poverty reduction, adds to the cost of doing porating environmental concerns in its sectoral policies business, and undermines confidence in the public sec- and projects in forestry, water and sanitation, gas tlaring tor. Det'iciencies in governance manifest themselves in reduction, population and( health, industrial and haz.ard- a number of ways. First, oil revenues typically cannot ous waste management, and coastal zone management. be fully accounted for. The failure to establish full control over the government's statutory oil revenues and lack of accountability for nonstatutory oil revenues have obstructed proper fiscal management. Second, succes- The pressure on Nigeria's external balance has been sive governments have lacked political will in halting exacerbated by the downturn in world oil prices of unauthorized extrabudgetary spending for nonproduc- recent years. Meanwhile, the competitiveness of nonoil tive programs. Third, the public investment program is exports was dealt a severe blow in 1994 by rapidly too large, biased toward large capital-intensive projects, increasing inflation, the impact of the CFA franc devalu- and plagued by high costs due to rent seeking. Fourth, ation, and the abolition of the legal autonomous foreign the quality of public service delivery, particularly utility exchange market and the tixing of the otticial exchange and infrastructure services, is deteriorating, undermin- rate at an overvalued level. While in the 1995 budget ing Nigeria's international competitiveness. nonoil exporters are once again allowed to retain legally 15( Nigeria their foreign exchange earnings and obtain a market rate reducing poverty through policies that promote efficient when selling them, it is unlikely that recorded exports growth and that target public expenditures on basic will show a rapid recovery, as exporters'confidence will social services, and downsizing its public sector and take time to be restored. improving governance. Economic management, which The Nigerian economy is highly exposed to world oil has progressively deteriorated since 1990, has been re- price fluctuations. For each $1 per barrel change in oil sponsible for the slowdown in growth. As fiscal and prices, total foreign exchange revenues change by 6 balance of payments deficits have increased, inflation percent. While the market outlook is for oil prices to be has accelerated. Trade distortions have reemerged. In- slightly higher in real terms in 1995 than in 1994, and terest rates are now set administratively and are far to rise gradually over the medium term, Nigeria's efforts below market-clearing levels. The foreign exchange re- to increase its productive capacity to 2.5 million barrels gime for government transactions is open to abuse. a day by the middle of the decade appear unlikely: favorable new terms have been negotiated with joint External Debt venture companies, but arrears on cash calls, estimated to be above $1 billion at the beginning of 1995, will Nigeria has run a large trade surplus since 1986 but- continue to restrict new investment. The government's with the exception of 1990 - a current account deficit, efforts to diversify energy exports, notably through a reflecting its large interest due and other services. Nige- liquefied natural gas project, remain under active discus- ria's net transfer position on official external debt was sion with potential foreign investors. persistently negative, averaging 4.6 percent of GDP a year between 1986 and 1994. The stock of public and Medium-Term Prospects publicly guaranteed external debt increased from $19.5 billion at end-1985 to around $30.5 billion (including Assuming a continuation of recent policies, Nigeria's $9.6 billion of arrears on both principal and interest) by medium-term prospects remain bleak. While in the short end-1994. This 50 percent increase occurred mostly term, a small rebound in economic activity might occur between 1985 and 1987, and was principally due to following the liberalization of the autonomous foreign cross-currency revaluations, which boosted the value exchange market, growth in key sectors, especially nondollar-denominated debt, and the reconciliation and manufacturing, services, and oil, is likely to stagnate. recognition as public debt of a large stock of trade The adoption of an appropriate policy mix aimed at arrears from the 1982-83 period. Nigeria has concluded stabilization and sustainable growth would impact posi- three rescheduling agreements with the Paris Club since tively on economic efficiency and bring about a more 1986, but substantial new arrears accumulated after the rapid and sustained supply response. expiration of the third agreement at end-March 1992. Nigeria faces interrelated development challenges of Nigeria's total debt service burden, two-thirds of which establishing viable and stable macroeconomic frame- is due to official creditors, is projected to remain above work policies and streamlining its incentive regime, 31 percent of projected exports during 1995/96. 151 Nigeria Population mid-1993 (millions) 105.3 Income group: Low GNP per capita 1993 (US$) 300 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 1 Investment to GDP ratio (%) Gross domestic investmenVGDP 9.0 13.6 16.6 15.1 10.1 20T Exports of goods and nfs/GDP 16.1 43.5 39.1 36.1 21.9 Gross domestic savings/GDP 12.6 28.3 21.2 18.5 11.0 Gross national savings/GDP 8.7 18.4 14.7 11.2 4.4 1 Current account balance/GDP -0.3 4.7 -2.0 -3.3 -5.3 Interest payments/GDP 1.6 5.7 5.6 4.5 4.0 Total debt/GDP 24.1 106.5 104.3 114.3 86.8 0 Total debt/expons 148.6 241.6 247.3 284.2 312.1 I 1 92 03 GOP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Shares of GDP by sector Agriculture 37.3 32.7 26.7 33.5 42.7 190 I Industry 29.2 41.4 53.2 42.6 32.1 i Manufacturing 12.2 7.9 6.4 7.1 7.5 Services 33.5 25.9 20.1 23.8 25.2 1985-90 1990-94 1992 1993 1994 9 9 (average annual growth) Agnculture 4.7 2.2 2.1 1.4 2.4 '-~- . Industry 3.5 0.3 1.3 -2.4 -5.1 / * Manutactunng 5.0 -0.3 -2.5 -1.8 -2.6 Services 8.2 5.0 5.7 6.1 3.7 89 99 90 9 1 92 93 94 GDP 4.5 2.4 2.6 1.5 0.3 EAgriculture E2Industry riServiceS GOP: EXPENDITURE 1985 1990 1992 1993 1994 FGro-thste ot GDI and GDP (%) I(% of GDP) [rwhrtso D n D Pnvate consumption 73.8 57.4 65.7 63.2 78.6 30 T General govemment consumption 13.5 14.3 13.1 18.3 10.5 25 Gross domestic investment 9.0 13.6 16.6 15.1 10.1 20 Expons ol goods and nfs 16.1 43.5 39.1 36.1 21.9 Imports of goods and nfs 12.4 28.8 34.4 32.6 21.0 1s 10 1985-90 1990-94 1992 1993 1994 s (average annual growth) Pnvateconsumption -1.2 2.8 4.1 -1.2 2.2 91 94 General govemment consumption 6.7 4.0 -5.2 28.4 -3.3 -5 \ 9 3 Gross domestic investment 2.6 -4.6 1.8 -16.4 -14.1 .10 Exports of goods and nts 3.1 1.7 3.3 2.9 -4.9 1 Imports of goods and nfs -9.0 -0.5 2.2 -2.1 -12.0 Gross national product 3.2 3.4 3.1 1.3 2.7 -20 Gross national income 0.3 0.2 1.5 -1.0 -0.6 -GDl -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Doneetic prices 70 (% change) 60 Consumer prices 7.4 7.4 44.6 57.2..s '0 Wholesale prces 40 Implicit GDP deflator 2.8 7.6 65.4 24.9 40.0 30 20 Government finance 10 (% of GDP) 0 -_, , - Current budget balance 4.4 3.6 -1.4 -8.6 -2.4 89 90 91 92 93 94 Overall surplus/deficit -2.0 -2.9 -8.1 -17.8 -9.6 -GDP def. -*-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 152 Nigeria POVERTY and SOCIAL 1985-90 1990-94 IFDevlopment diamond Population 2.9 3.0 Life expectancy Labor force 2.7 2.9 most recent estimate Poverty level: headcount index (% of population) .. GNP , , Gross Life expectancy at birth 50.8 per primary Infant mortality (per 1,000 live births) 82.6 capita enrollment Child malnutrition (% of children under 5) 43.0 Access to safe water (% of population) 40.0 Energy consumption per capita (kg oil equivalent) 140.5 Illiteracy (% of population age 15+) 49.3 Access to safe water Gross primary enrollment (% of school-age population) 76.0 l TRADE (millions US$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 12,566 13,914 12,307 11,297 9,661 14.DDO Fuel 12,203 13,508 12,026 11,022 9,508 _ Cocoa 310 166 90 76 70 10 n Manufactures .c . l Total imports (cil) 93165 7.827 8,737 8,129 7,271 a,o0o | Food .. . .6 Fuel and energy.. . Capital goods 3,199 3,511 .. . Export price index (1987=100) 152 145 119 106 95 200 Import price index (1987=100) 74 102 101 96 97 Termsof trade (1987=100) 206 141 118 110 98 l 0 92 93 94 Openness of economy (trarde/GDP, %) 29 72 74 69 43 E [Exports Cglmports BALANCE ofPAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GDP ratio (%) Exports of goods and nfs 13,032 14,083 12,424 11,412 9,759 6 Imports of goods and nfs 10,070 9,341 10,947 10,317 9,359 T Resource balance 2,962 4,742 1,477 1,095 400 Net factor income -2,916 -3,287 -2,800 -2,627 -2,545 2 Net current transfers -260 74 733 605 281 a Current account balance BB 9011 LW M 934 Before official transfers -214 1,529 -590 -927 -1,864 2 After official transfers -214 1,529 -590 -927 -1,864 4- Long-term capital inflow -753 -2,510 -5,225 -1,840 -1,540 Total other items (net) 1,663 3,489 2,039 3,422 2,477 _ Changes in net reserves -696 -2,508 3,776 -655 927 Memo: Reserves excluding gold (mill. US$) 1,667 3,864 967 1,372 Reserves including gold (mill. US$) 1,892 4,129 1,196 1,640 Conversion rate (locaV/US$) 0.9 8.0 18.5 24.5 27.8 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export ratios Long-term debtlexports 110.7 230.7 229.7 249.5 295.6 150 IMF creditlexports 0.0 0.0 0.0 0.0 0.0 Short-term debt/exports 38.0 10.9 17.6 34.7 16.5 7, Total debt service/exports 34.2 23.6 30.1 16.0 21.1 lPNG GDP ratios 18. Ea PMv. Long-term debt/GDP 180 101.7 96.9 100.4 82.3 SD M l lOf. IMF credit/GDP 0.0 0.0 0.0 0.0 0.0 Short-term debt/GDP 6.2 4.8 7.4 14.0 4.6 25 Long-term debt ratios Private nonguaranteed/long-term 9.7 1.2 1.2 1.1 1.0 - Public and publicly guaranteed 0 Private creditors/Aong-term 75.0 46.8 34.6 35.0 34.8 88 89 90 91 92 93 94 Official creditors/long-term 15.3 52.0 64.3 63.8 64.1 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. if data are missing, the diamond will be incomplete. 153 Rwanda wanda is a small, resource-poor, overpopulated, level of 36 per cent over 1988-90, and foreign reserves R and landlocked country in Central Africa beset declined to the equivalent of one month of imports. by chronic poverty and ethnic conflict. Its popu- Fiscal management was the weak link of Rwanda's lation, which stood at 7.8 million in 1993 (295 economic management. The 1993 deficit was 19.2 per- inhabitants per square kilometer), declined in 1994 to cent of GDP because of a 1.0 percent decline in tax about 7.0 million as a consequence of the civil war that revenue and continued high levels of military spending. erupted in April 1994. About 2 million Rwandese live in The deficit was financed by recourse to domestic credit, refugee camps in neighboring Zaire, Burundi, Tanzania, resulting in inflationary pressure. External assistance and Uganda, and another million are internally dis- financed about 60 percent of imports and 90 percent of placed. public investment, and was equivalent to about $30 Ethnic conflict between Tutsi herders (15 percent of yearly per capita. Debt outstanding and disbursed was the population) and the majority Hutu farmers led to equivalent to 60 percent of GDP in 1993. major exoduses of Tutsis before independence in 1959 The Rwandan civil war dealt a severe blow to the and in 1969 and 1972-73. During the late 1980s frequent foundations of a narrow and fragile economy. The but minor incidents of ethnic violence culminated with contraction of the Rwandan economy as a result of the a large-scale invasion of Rwanda in October 1990 by war is difficult to calculate: a reasonable estimate is armed rebels of the Rwandese Patriotic Front, composed that real GDP declined by as much as 50 percent in mainly of exiled Tutsis. A peace agreement was signed 1994; this came in the wake of an 10 percent contrac- in August 1993, and a national coalition government was tion in 1993. expected to be formed. However, implementation of the peace accord was delayed. After the death of Rwanda's president in April 1994, intensive fighting resumed throughout the country. The previous government and By the late 1980s Rwanda faced a severe financial crisis its army were ousted. Rwanda's new government, sworn brought about by a combination of falling coffee prices in in July 1994, is dominated by the patriotic front, but and inappropriate macroeconomic policies. It embarked includes members of both ethnic groups and has gained on a reform program in 1990 supported by IDA and an widespread international recognition. IMF adjustment facility. The key elements of the adjust- ment program were to stabilize the financial situation, enhance the competitiveness of the economy. improve the allocation and use of resources, lay the foundation Before the recent events, Rwanda was already one of the for export-led sustainable growth, and provide a frame- least developed countries in Africa, with a GNP per work for poverty alleviation. capita of $210 in 1993. The economy was essentially In fiscal 1992 the authorities implemented most of rural; nearly 93 percent of the population lived in rural the reform measures, with the important exception of areas and derived its livelihood from subsistence agri- coffee sector reforms, including tight fiscal and mone- culture and the cultivation of coffee and tea, which tary management (including the devaluation of the represented about 80 percent of export earnings. Rwandan franc), the introduction of an open general The economy stagnated over 1990-93, and per capita licensing system, elimination of export taxes (with the GDP declined by about 20 per cent. In 1993 the deficit exception of coffee) and import quotas, and the intro- on the current account of the balance of payments ex- duction of a simplified import tariff structure. The ad- ceeded 24 percent of GDP, compared with 16 percent justment program was derailed by the civil war, which during the previous three years; the ratio of exports to led to an unsustainable buildup of military expenditures imports declined to 23 percent, from an already low and serious disruption of economic activity, especially 154 Rwanda in the countryside, and by a 30 percent decline in Poverty and Social Indicators world market prices for coffee. The war in 1994 dis- mantled the macroeconomic framework and led to the Because of deteriorating economic conditions, exacer- collapse of the reform program. The government that bated by the armed conflict since 1990, the percentage took power in July 1994 was not in a position to of Rwanda's population living below the poverty line of resume adjustment, the focus being on reconstruction $170 at 1985 prices is estimated to have risen sharply and rehabilitation of the country's physical and social from 40 percent in 1985 to over 53 percent in 1992. As infrastructure. a result of the civil war, the incidence and depth of Rwanda's post-war economic situation is grim: poverty has worsened. Rwanda's social indicators, more than one-third of the population are refugees in which used to be above regional averages, deteriorated neighboring countries or internally displaced; more in the late 1980s and early 1990s; life expectancy was than half its agricultural and industrial output was lost, only forty-nine years; 53 percent of the population was and most Rwandan enterprises are not operating. The illiterate, infant mortality was 119 per 1,000, and the collapse of the banking system impeded the normaliza- AIDS epidemic was one of the worst in the world - tion of economic activities. Although damage to physi- with 20 percent of the population seropositive - and cal infrastructure such as roads and bridges was the incidence of malaria was increasing. relatively light, human losses were enormous, and the The 1994 crisis also caused a sharp drop in the central administrative capacity was nearly paralyzed. delivery of social services. A sizable part of the person- The country's institutional memory and project imple- nel in these sectors was killed or fled. Medical supplies, mentation capacity were severely handicapped by the essential medicines, and vehicles were stolen; medical killings and disappearance of personnel, destruction of centers were damaged; and normal distribution channels files, and theft of computers and equipment. Most, if broke down. Much of current health services are being not all, externally financed development projects came delivered by international NGOs. Educational infra- to a halt, or were replaced by emergency humanitarian structure and equipment were also stolen or vandalized. assistance. Nevertheless, a large proportion of primary schools The immediate challenges facing the government are restarted activities in late 1994, albeit with greatly re- achieving national reconciliation and the return of refu- duced resources: they lacked qualified teachers and ba- gees and displaced persons, rebuilding institutions, and sic equipment and essential learning materials such as restarting economic growth and development. textbooks, notebooks, and pencils. 155 Rwanda Population mid-1993 (millions) 7.6 Income group: Low GNP per capita 1993 (US$) 210 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%) Gross domestic investmenVGDP 17.3 11.8 13.9 14.9 20 Exports of goods and nfs/GDP 10.8 6.5 6.9 7.4 Gross domestic savings/GPD 8.2 -1.1 -6.5 -9.6 Gross national savings/GOP 8.5 -0.9 -5.3 -8.3 Current account balance/GOP -10.2 -13.2 -19.9 -24.1I'H li Interest payments/GDP 0.2 0.3 0.4 0.2 Total debt/GDP 21.4 31.9 53.3 60.9 __________________ Total debt/exports 222.2 468.6 717.0 765.6 ..8 89 0 91 92 3 0 GDP: PRODUCTION of GDP) 1 985 1990t 1 992 1993 1994 Shares of GDP by sector (%) (% of GDP) Agriculture 45.7 40.8 43.2 40.5 100 Industry 25.4 22.3 19.6 215 Manufacturing 15.0 14.5 12.2 13.9 Services 28.9 36.9 37.2 38.0 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 0.0 -5.4 -1.7 -15.4 Industry -t5 0.5 4.5 2.1 Manutacturing 1.1 0.7 2.9 3.8 Services 4.8 -4.2 -1.7 -10.5 0 80 90 0 91 92 93 94 GDP 1.0 -0.2 3.2 -10.0 .. *Agriculture Eindustry []Services GDP: EXPENDITURE (% ofGDP) 19ss 1990 1992 1993 1994 Growth rates of GDI and GDP(%) Prvate consumption 80.5 86.5 79.9 87.4 20 General govemment consumption 11.3 14.7 26.6 22.2 |A Gross domestic investment 17.3 11.8 13.9 14.9 Exports of goods and nts 10.8 6.5 6.9 7.4 10 Imports of goods and nts 19.9 19.5 27.3 32.0 | s 1985-90 1990-94 1992 1993 1994 _9 (average annual growlh) 94 Pnvate consumption 1.0 -1.4 -5.4 -0.2 I 0 General govemment consumption 6.7 10.4 34.2 -27.1 Gross domestic investment -8.1 1.2 16.8 -2.7 .. -15 Exports of goods and nfs 3.0 -5.4 0.2 -12.8 -20 Imports of goods and nts -1.5 3.5 2.9 11.7 Gross national product 1.0 -0.2 3.2 -10.0 -2 Gross national income -0.3 -0.3 2.0 -9.3 . GDl -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 [Change of GDP deflator and CPI (%) Domestic prices 20 (% change) I I Consumer prices 1.8 4.2 9.6 12.4 .. St Wholesale prices .. .. .. Implicit GDP deflator 3.7 4.2 0.2 9.7 Government finance 5 (% of GDP) 0 o, __ Current budget balance 2.2 -4.6 -8.3 -8.2 .. 89 00 91 92 93 94 Overall surplus/deficit -4.3 -11.2 -17.5 -18.2 .. -GDPde.t -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 156 Rwanda POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development diamond' Population 2.9 2.6 Life expectancy Labor force 2.8 2.9 T most recent estimate Poverty level: headcount index (% of population) 53.0 GNP Gross Life expectancy at birth 47.2 per pnmary Intant mortality (per 1,000 live births) 109.0 capita enrollment Child malnutrtion (% of children under 5) 29.2 Access to safe water (% of population) 64.2 Energy consumption per capita (kg oil equivalent) 27.4 Illiteracy (% of population age 15+) 49.8 Access to sate water Gross pnmary enrollment (% of school-age population) 71.0 TRADE (millions US$) 1985 1990 1992 1993 1994 FExport and Import levels (mill. US$) Total exports (fob) 119 103 69 68 .. 400 Coffee 86 66 35 42 350 Other agriculture 17 21 21 18 300 Total imports (cii) 274 354 351 385 250 Food 41 32 29 59 200) Fuel and energy 51 45 37 39 . I. oso 17171. Capital goods 56 98 102 104 .. ic Export price index (1987=100) 77 113 120 117 ..111 11111 11E Import price index (1987=100) 77 113 120 117 .. 0 Terms of trade (1987=100) 100 100 100 100 .. 9 9 9 92 93 94 Openness of economy (trade/GOP. %) 31 26 34 u9 Exports Ol mports BALANCE of PAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GDP ratio (% Exportsofgoodsandnfs 154 151 113 111 .. o _ _ Imports of goods and nfs 328 449 448 478 so 8 90 91 92 93 94 Resource balance -174 -299 -335 -367 .. Net factor income -6 -12 -11 -14 .. Net current transfers 4 6 20 21 .._ Current account balance Before official transfers -175 -305 -325 -360 -15t After official transfers -63 -167 -107 -111 Long-term capital inflow 73 85 86 64 .201 Total other items (net) 5 25 -10 16 Changes in net reserves -14 56 31 32 .. 1-25 Memo: Reserves excluding gold (mill. US$) 113 44 79 47 Reserves including gold (mill. US$) 113 44 79 47 Conversion rate (local/US$) 101.3 82.6 133.4 144.3 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%) Long-term debt/exports 199.8 437.8 660.4 703.1 1000 IMF credit/exports 6.1 0.1 9.8 10.1 Short-term debt/exports 16.4 30.7 46.8 52.4 .. _ Total debt service/exports 10.8 13.8 20.2 5.0 .. 7 oPNG GDP ratios - Prnt. Long-term debt/GDP 19.2 29.8 49.1 55.9 50 *oll IMF credit/GDP 0.6 0.0 0.7 0.8 Short-term debt/GDP 1.6 2.1 3.5 4.2 25 1 Long-term debt ratios Prvate noncluaranteed/long-term 0.0 0.0 0.0 0.0 0.0 i Public and publicly guaranteed 0- Private creditors/long-term 3.5 0.5 0.2 0.2 0.1 J8 89 90 91 92 93 94 Official creditorsAong-term 96.5 99.5 99.8 99.8 99.9 The develcopment diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 157 Sdo Tome and Principe he Democratic Republic of Sao Tome and Prin- The country is endowed with abundant energy re- T cipe consists of two islands in the Gulf of Guinea serves and great natural beauty. Only 10 percent of its about 200 miles off the coast of Gabon. The estimated hydroelectric potential has been harnessed. islands cover a total area of about 1.092 square The first multiparty elections took place in 1991. A new kilometers. with most of the country's 125.000 inhabi- government was installed in November 1994 after a tants living on the island of Sao Tome, with an estimated second democratic electoral process. Because of the per capita GDP of $350 (1993). The Portuguese settled political developments, macroeconomic performance the islands in the 15th century and developed plantations was weak in 1994. based on sugar cane and coffee. In more recent times, cocoa has been grown on medium and large estates Poverty and Social Indicators utilizing labor from other African countries. Consump- P tion needs were met largely by imports. At independence Sao Tome and Principe's low income level disguises a in 1975 Sao Tome and Principe adopted a centralized relatively good performance with regard to other social economic planning system. Most agricultural land was indicators. Life expectancy at birth is about 68 years; nationalized, and market mechanisms were limited. well above the level in most African countries; infant S.o Tome and Principe inherited a well-organized mortality rate is about 48 per 1,000, and the basic liter- cocoa plantation network and supporting infrastructure acy rate, at 75 percent, is above that of many low-income from the colonial administration, but maintenance of the developing countries. plantations had declined precipitously by 1975 as the Portuguese reduced investments in anticipation of inde- T'ransition to a Market Economy pendence. From 10,000 tons at independence, cocoa output declined to 3,200 tons by 1994. owing to the The government undertook an ambitious public invest- inability of the government to replace the departing ment program between 1976 and 1983 involving sub- Portuguese with experienced managers and invest ade- stantial investments in construction, beverages, poultry, quately in repair and maintenance. Agriculture produc- fishing, and transport. These investments did not make tion, including cocoa, was further discouraged by asignificantcontributiontoGDPgrowthandcreatedan inappropriate price and trade policies, including an unsustainable debt-service burden. In spite of economic overvalued exchange rate, and low international cocoa measures aimed at reforming the incentive system, GDP prices in the second half of the I 980s. per capita declined an estimated 30 percent in real terms A variety of microclimates allows cultivation of a between 1984 and 1987. The growing losses of both the broad rangeof tropical crops. Although about halfof the cocoa plantations and the majority of nonagricultural cultivated land area is used for cocoa production, which public enterprises, combined with increasing debt-serv- accounts for over 70 percent of export earnings, the ice obligations, resulted in large fiscal deficits. Faced government is promoting diversif'ication of exports and with internal and external imbalances, the government is seeking to establish trade agreements with neighbor- decided to break with its postindependence policies and ing countries. Long-term growth will depend largely on embarked on a comprehensive structural adjustment expanding domestic and international markets for San- program in mid-1987. Since the onset of the program, tomean agricultural products, including fisheries. De- the government has taken firm steps toward decreasing velopment of tourism is still in its infancy because of its role in the economy. poor physical infrastructure and insufficient links with The second phase of the structural adjustment pro- the rest of the world. However, a new airport was coin- gram started in 1991. and the government has since pleted, and the upgrading of maritime port facilities is focused on stabilization policies aimed at achieving under way. macroeconomic equilibrium. It dismantled a complex 158 Sao Tome and Principe system of price and trade controls, and liquidated the in fiscal 1994 compared to $5.7 million in fiscal 1992. state trading company and allowed imports by the pri- Current account deficits of the balance of payments have vate sector. A crawling peg system of exchange rate been financed mainly by loans and grants, and the over- management was adopted in 1992 to ensure a more all deficit by further accumulation of arrears, debt relief, timely response to differential inflation trends at home grants, and some reduction in reserves. The current and abroad. Widening fiscal deficits have been con- account deficit (aftergrants) is expected to drop to $17.2 tained through tax increases, including a tax increase on million (78.6 percent of GDP) in 1995. mainly because petroleum products, and increases in electricity tariffs. of lower imports. Although the primary current balance improved from a Since the start of the second phase of the structural deficit of 3.1 percent of GDP in 1990 to a surplus of 1.3 adjustment program, the government has adjusted the percent in 1993, it deteriorated to a deficit of 9.6 percent exchange rate at various times, causing a cumulative of GDP in 1994 because of lax fiscal and monetary depreciation of about 328 percent in local currency policies. In December 1994 the government took drastic terms through December 1994, nearly 75 percent in real measures to reverse this trend and unified the official terms. This devaluation made the more efficient cocoa and free market exchange rates. As a result of the above estates profitable, notwithstanding a fall of about 50 measures, inflation declined to 20 percent in 1993 from percent in world cocoa prices over the period of adjust- 36 percent in 1991; it rose again to close to 40 percent ment. Pursuit of a more realistic exchange rate policy in 1994 and dropped to nearly zero during the first two contributed to reducing the gap between the official and months of 1995. the parallel market exchange rates from 65 percent at Significant progress has also been made in restruc- end-1987 to I percent at end-1992. During fiscal 1994 turing the banking system, which was dominated by the expansionary monetary policies and delays in donor National Bank of Sao Tome and Principe. The govern- disbursements have been to a large extent responsible ment is committed to reforms in the public investment for the wider gap. However, the government stepped in program to ensure more efficiency. It has also restored to reverse the trend through tight monetary and fiscal the profitability of the major cocoa estates through pri- policies and unified the official and free market ex- vatization measures, and encouraged diversification of change rates in early December 1994. The authorities agricultural production and exports. Finally, major re- have also allowed the operation of exchange houses, forms in the public enterprise sector and public admini- which has helped stabilize the exchange rate. stration are under way. As financing of the fiscal deficit required increased Maintaining fiscal discipline has proved a difficult recourse to bank credit, growth in broad money acceler- task. The current fiscal balance (excluding interest on ated from an average annual rate of about 7 percent in external debt) moved from a deficit of 2.8 percent of 1987 to a peak of 31 percent in 1992, reflecting a rapid GDP in 1990 to a surplus of 3.6 percent of GDP in 1993, expansion of credit. In 1993 the authorities reduced the but declined to a deficit of I percent in 1994. Although growth of broad money to 18 percent. which contributed the ratio of tax revenues to GDP has risen dramatically to reducing inflation; however, this trend was reversed from 11 percent in 1991 to 17percentin 1994 asaresult in 1994. Inflation declined from 36 percent in 1991 to of tax reforms including conversion of all sales taxes 21 percent in 1993, but rose again to close to 40 percent from a specific to an ad valorem basis, inclusion of in 1994. Nominal interest rates have been raised since import duties in the tax base for the calculation of the 1991 to positive levels in real terms, in sharp contrast to consumption tax, and strengthening of the tax admini- the negative real levels of the 1980s. To keep inflation stration, the ratio of expenditure to GDP has risen faster, under control, the authorities have also adopted a policy from 31 percent in 1991 to 51 percent in 1994. The of sterilizing the counterpart funds arising from balance authorities are, however, committed to further strength- of payments support, with the exception of food aid. ening the tax administration and reducing expenditures The government has dismantled price controls and - mainly transfers to parastatals - and maintaining eliminated all subsidies on imported foodstuffs and pe- tight control on the wage bill and parafiscal operations. troleum products. The private sector has taken an in- The government prepared a three-year public invest- creasing role in exporting and importing all but ment program for 1993-95, and work has started on a petroleum products since the monopoly of the state 1995-97 investment program. Total investment for 1994 trading company was abolished. Export procedures amounted to $21 million and is programmed at $19 have been greatly simplified, and an automatic import million for 1995. licensing system, currently being implemented, no Lower imports and higher exports of goods and non- longer restricts access to foreign exchange. The cocoa factor services during 1994 allowed the current account export tax has been reduced to 10 percent. Efforts are deficit (after grants) to drop to $17.6 million from $23.8 under way to set up a market-based mechanism to move million in 1993. Exports of goods averaged $6.5 million the distribution of food aid to the private sector. 159 Sdo Tome and Principe CGovernment has also undertaken a major land reform agriculture, together with appropriate pricing and mar- and a comprehensive privatization program aimed at keting polices. Real output is forecast to increase by an reducing budgetary transfers to public enterprises and average of 3.0 percent a year between 1995 and 1997 stimulating private investment. Ten nonagricultural and rise to 4 to 5 percent a year after 1997. The main public enterprises have been privatized, liquidated, or sources of growth are expected to be increased cocoa brought under foreign management. Eighteen others are production, export diversification of agricultural prod- expected to be privatized in the next few years. The ucts and fisheries, construction, tourism, and cottage government is streamlining the civil service and improv- industries. Continued contraction of public consump- ing the incentive structure by raising salary levels, and tion, improved public sector resource allocation and has reduced the civil service by 8 percent. investments, along with improved incentives for the Financial sector reform has been a central feature of private sector, would imply increased private savings the structural adjustment program. The primary objec- and investments. Private consumption is projected to tive of the reform was to separate the central banking increase by about 2 percent a year over 1995-97. and commercial banking functions of the National Bank of Sao Tome and Principe. A new central bank was External Debt established in August 1992, the Caixa Nacional de Pou- panca e Credito was created in February 1993, and a External debt outstanding and disbursed, which was private bank, the International Bank, started operations estimated at about $135 million in 1987, rose to about in March 1993. $236 million in 1994 (including capitalization of ar- rears), the equivalent of approximately 650 percent of Medium-Term Prospects GDP. At the end of 1993 medium- and long-term debt amounted to $190.4 million, representing 81 percent of Sao Tome and Principe will continue to face a difficult the total, of which $48.8 million consisted of payments economic and financial situation over the medium term. arrears. Short-term debt represents the remaining 19 The authorities intend to accelerate the pace of structural percent, amounting to $45.1 million, which consisted reforms during 1995 to bring inflation under control and almost entirely of payment arrears. As a result, the ratio narrow the current account deficit to a level that can be of scheduled debt service (before rescheduling and refi- financed by grants and concessional aid. The govern- nancing) to exports of goods and nonfactor services ment intends to continue to promote food crop diversi- increased from 64 percent in 1988 to about 95.2 percent fication and export expansion, based on smallholder in 1994. 160 Sao Tome and Principe Population mid-1993 (thousands) 122 Income group: Low GNP per capita 1993 (US$) 350 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 1 InvestmenttoGDPratlo(%) Gross domestic investment/GDP 37.0 57.2 51.1 59.5 85.0 9n Exports of goods and nfs/GDP 26.4 16.7 24.1 30.4 42.6 7e 0 Gross domestic savings/GDP -18.1 -9.4 -18.8 -18.1 -14.2 e- Gross national savings/GDP -23.6 -19.6 -27.9 -27.0 .. Current account balance/GDP -60.3 -62.0 -81.3 -86.8 -100.2 30 Interest payments/GOP 3.7 2.4 2.1 2.3 1 Total debt/GOP 178.9 305.4 503.9 648.5 .. Total debt/exports 650.5 1,175.4 2,169.0 2,116.7 ..93 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Share d GDP by stor (%) Agriculture .. 25.8 24.0 29.3 23.8 1C0 Industry .. 10.0 12.9 11.1 9.0 Manufactunng .. 5.6 6.7 Services .. 64.2 63.1 59.6 67.2 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture.. . Industry .. .. Manufacturing .. .. Services .. .. .. 0 as a9 OD 91 92 93 94 GDP 0.7 1.4 1.5 1.3 1.5 EAgriculture Mindustry OServicas GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 GrowthrtmsafGDlandGDP(%) Private consumption 80.7 92.1 96.2 89.1 73.4 15 General govemment consumption 37.4 17.3 22.6 29.0 40.8 | Gross domestic investment 37.0 57.2 51.1 59.5 85.0 10 + Exports of goods and nfs 26.4 16.7 24.1 30.4 42.6 Imports of goods and nfs 81.4 83.3 94.0 108.0 141.8 5 1985-90 1990-94 1992 1993 1994 0 oa _ (average annual growth) s9 N \ 921 93 94 Private consumption 0.9 -10.0 -7.3 -8.9 -25.0 -s General govemment consumption -4.3 22.4 18.1 32.2 38.7 Gross domestic investment 8.4 0.9 -12.2 14.6 2.4 1\ Exports of goods and nfs 4.6 4.5 -0.6 12.6 3.6 Imports of goods and nfs 0.9 -0.6 -10.8 13.2 -6.0 Gross national product -0.6 0.0 3.3 -1.6 -1.6 15 Gross national income -2.8 0.3 2.7 -0.9 -2.4 -GDI -,GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change ofGDPdeflatorandCPI(%) Domestic prices so (% change) 40 Consumer prices .. .. . *- .. Wholesale prices .. ..3 Implidt GDP deflator 0.2 27.7 26.0 20.1 24.1 20 Govemment finance 10 (% of GDP) 0 o Current budget balance .. -11.8 -9.2 -10.9 -13.2 99 90 91 92 93 94 Overall surplus/deficit .. .. .. .. -64.4 -GDP def. -CFCPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 161 Sao Tom6 and Principe POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development dlamond Population 2.0 2.0 Life expectancy Labor force | T most recent estimate Poverty level: headcount index (%. of population) .. GNP Gross Life expectancy at birth 67.0 per primary Infant mortality (per 1,000 live births) 25.0 capita enrollment Child malnutrition (% of children under 5) Access to safe water (% of population) Energy consumption per capita (kg oil equivalent) 188.5 Illiteracy (% of population age 15+) 33.0 Access to safe water Gross pnmary enrollment (% of school-age population) Ae t TRADE (millions US$) 1985 1990 1992 1993 1994 |Export and Import levels (mill. USS) Total exports (fob) 7 7 5 7 7 35 Cocoa 6 6 4 4 5 3 Copra 1 Manufactures 25 Total imports (cif) 24 26 29 30 31 2 Food 7 6 5 4 7 1 Terms of tr' (19b= 100) .. 45 .. ..8 9 9 1 9 3 Capital goods 9 9 1 1 7 1 1 Export price index (198 7=100) .. 60 79 Import price index (1987=100) .. 133 E F RE Terms of trade (19bZ=100) .. 45 a g 9 1 9 3 9 Openness of economy (trade/GDP,%) 108 100 118 138 184 fExports c9Imports BALANCE of PAYMENTS (millions USS) 1985 1990 1992 1993 1994 Current account balance to GDP ratio (%) Exports of goods and nfs 9 12 10 12 12 o Imports of goods and nfs 29 38 45 42 39 B B9 90 91 92 93 914 Resource balance -19 -26 -35 -30 -27 .20 Net factor income -2 -5 -5 -6 -5 J0 Net current Iransfers 0 0 1 2 3 Current account balance 60 L Before official transfers -21 -31 -35 -34 -29 After official transfers -16 -20 -22 -24 -15 -B0 - L L Long-term capital inflow 8 9 13 9 13 . oo Total other items (net) 9 11 1 1 20 0 Changes in net reserves -1 0 -2 -5 2 |120 Memo: Reserves excluding gold (mill. US$) .. Reserves including gold (mill. US$) .. Conversion rate (IocaflUS$) 44.6 143.3 321.3 429.9 732.6 EXTERNAL DEBT Exrport ratIos 1985 1990 1992 1993 1994 Structure of *xtemal debt (%) Long-term debt/exports 642.2 1,043.1 1,956.0 1,881.7 .1. IMF credit/exports 0.0 8.5 11.0 9.2 .. Short-term debt/exports 8.3 123.8 202.0 225.8 75 - *4 Total debt servicelexporls 29.1 215 26.0 20.8 GDP ratios a P. Long-term debt/GDP 176.6 271.0 454.4 576.5 50 mOff. IMF crediVGDP 0.0 2.2 2.6 2.8 Short-term debt/GDP 2.3 32.2 46.9 69.2 Long-term debt ratios Private nonguaranteedAong-term 0.0 0.0 0.0 0.0 Public and publicly guaranteed 89 90 91 92 93 94 Private creditors/long-term 9.2 0.9 0.6 0.5 . _SB_B9_90 _91 _92 _93 _94 Official creditorsAlong-term 91.0 99.1 99.4 99.5 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete 162 Senegal S enegal is a small semi-arid Sahelian country nue measures, such as heavy taxation of petroleum im- whose population growth of about 3.0 percent a ports. This had an adverse impact on costs of production year is substantially above real annual GDP and forced firms to close or join the informal economy. growth of 1.7 percent over 1988-1993. Predomi- In 1992 and 1993 Senegal's economy continued to de- nantly rural and with limited natural resource teriorate as the difficulties of pursuing an adjustment endowments, the economy is highly vulnerable to cli- strategy based on internal deflationary policies became matic vagaries and price fluctuations in international more acute. The fiscal deficit and balance of payment commodity markets, and has long been dependent on positions worsened, with the fiscal balance (excluding external funding. The modern sector, which includes grants) declining from a 0.2 percent surplus in 1991 to fishing, phosphates, chemical industries, manufactur- a 3.9 percent deficit in 1993, and the current account ing, and tourism, is concentrated in Dakar and on the balance (excluding transfers) sliding from a deficit of coastal belt. Following the January 1994 devaluation of 8.3 percent of GDP to 9.3 percent over the same period. the CFA franc, per capita GNP in 1994 is estimated at Substantial domestic and external arrears accumulated $750. Adult literacy and primary enrollment rates in and foreign reserves declined sharply. Thus, the econ- 1993 were 27 percent and 58 percent respectively, 27 omy was stuck in a low-level equilibrium characterized percent and 21 percent below the average for Sub-Saha- by a sustained recession and underutilized capacity. ran Africa. Although Senegal has shown improvements To halt a rapidly deteriorating situation the in life expectancy, infant mortality, and child mortality, Senegalese authorities adopted several measures in Au- these indicators remain below those for other lower- gust 1993 designed to deepen the deflationary policies middle-income countries. that had been followed through the preceding decade, At independence in 1960, Senegal inherited a rela- including a 15 percent cut in public sector wages. Al- tively well-developed economy. Between 1974 and though these measures contributed to reducing imbal- 1978, a fortuitous combination of good rainfall and high ances, the magnitude of the real exchange rate world prices for groundnuts and phosphates led to a overvaluation was such that they came too late to be able short-lived export boom that fueled high levels of public to restore the competitiveness of the economy. There investment. A succession of droughts together with a was an overall budget deficit of CFAF 47 billion, and substantial deterioration in terms of trade between 1978 arrears rose from CFAF 49 billion to CFAF 134 billion and 1981 led to heavy borrowing to continue past spend- by the end of 1993. Net foreign assets fell by CFAF 17 ing patterns and created significant macroeconomic im- billion during the last six months of the year and reached balances that were not corrected until 1984. Between minus CFAF 203 billion. Overall, growth prospects 1984 and 1988 real GDP grew at an average rate of 4.3 remained extremely poor. percent, but this could not be sustained. The large real As the internal adjustment strategy pursued by the depreciation achieved by many competitor countries authorities fell short of expectations, the government and trade partners since 1985, combined with negative joined other member countries of the CFA franc zone in terms of trade shocks, led to an increasing overvaluation devaluing the currency 50 percent against the French of Senegal's real exchange rate, and the economy expe- franc in January 1994. At this stage the real exchange rienced a serious decline in key sectors after 1988. rate overvaluation has been sufficiently corrected by the nominal devaluation - inflation remained below the 40 Recent Economic Performance percent target for the first year, resulting in a real depre- ciation of over 30 percent in foreign currency terms - Since the beginning of the 1990s Senegal's economy has to permit renewed economic growth, if implementation experienced a serious contraction. The inability of firms of accompanying measures is sustained. There are signs to compete implied a shrinking tax base that led the of recovery in production in several sectors where the government to increase its reliance on exceptional reve- devaluation had a particularly favorable impact. For 163 Senegal exm-rple, exports of phosphoric acid are up in volume as have the regulatory and administrative procedures for by 27 percent, total fish exports are up in volume by 17 setting up private sector investment operations, and a percent, the production of cement has increased (first public enterprise reform was undertaken. Despite pro- quarter production in 1994 was 19 percent over the same gress in privatization, simplifying the tax structure, and period in 1993), and the number of tourism arrivals is eliminating direct subsidies to public enterprises, im- up 31 percent. However. because of an initial contrac- provements in civil service reductions were later re- tion and collection lags, there has been a substantial versed. shortfall in government receipts, particularly for cus- Financial sector adjustment, completed in 1992, was toms duties on imports of nonessential consumer goods. restructured and consolidated the Senegalese banking Furthermore, according to local banks, most investment sector; nine banks out of fifteen were liquidated, restruc- projects are still being postponed, although potential tured, or merged. In parallel, the Central Bank of the investors are actively negotiating for several enterprises Monetary Union undertook far-reaching reforms aimed in such sectors as textiles, shoes, and leather that had at removing controls on lending margins and sectoral shut down during the recession. allocations of credit, improving bank supervision, and Senegal's current account deficit, including gross moving from direct control on credit to a system of official transfers, was 7.6 percent of GDP in 1994.The indirect control through an interbank money market. overall deficit was 4.4 percent of GDP in 1994, and real While the CFA franc devaluation offers Senegal a GDP growth was 2.1 percent. Senegal's outstanding window of opportunity to make a breakthrough to sus- external debt totaled about $3.7 billion in 1993, or 64.7 tained growth, it continues to face major challenges, percent of GDP. Debt outstanding as a percentage of including maintaining the reform momentum created by GDP has increased as a result of the devaluation and is the devaluation. The devaluation has eliminated the projected to be reach 73.3 percent in 1996. Debt service need for the distortionary policies necessitated by the as a share of exports is, however, expected to decrease overvalued exchange rate and is proving to be a power- from 21.5 percent in 1993 to 18.8 percent in 1996. In ful impetus to reform. As a result, long-stalled reforms 1993. 60.8 percent of Senegal's total debt disbursed and have been approved, including amendment of the Labor outstanding was concessional, and its strategy is to Code and dismantling of monopolies through the elimi- contract new debt exclusively on concessional terms. nation of special agreements with enterprises. The country recently benefited from a generous Paris Club rescheduling in addition to receiving extensive debt relief from France, and a commercial debt buyback Medium-Term Prospects operation is under preparation. The government adopted an adjustment program for 1994-96 whose objectives are to achieve real GDP Structural Adjustment growth of 4.7 percent in 1995 and 4.8 percent in 1996, increase the investment-to-GDP ratio from 14.1 percent The governmients retorm effort began in 1980, and in 1993 to 16.7 percent (measured in current prices) in while little structural adjustment took place in the first 1996, achieve primary surpluses in the government's half of the decade, more substantial structural changes budget that reduce the budget deficit on a commitment occurred after 1985. However, the adjustment programs basis excluding grants from 4.5 percent of GDP in 1994 suftered major setbacks because of negative exogenous to 1 .7 percent in 1996, and contain the external current shocks and policy slippage. The broad objectives of the account deficit, excluding official transfers, to 9.8 per- adjustment programs have been to reestablish viable centofGDPin l994andreduceitto7.3percentby 1996. balance of payments and public finance positions. pro- Achieving the real growth target over the long term mote private investment and production in agriculture will depend on favorable supply responses in agriculture and industry, and achieve greater efficiency in managing and industry. For the major export crops, as well as for public sector resources. More recently, as the lack of rain-fed food crops, technical, institutional, and envi- comipeiitiveness ot the economy had become more ronmental factors still represent important obstacles. acute. a central focus of the reform effort has been to The physical constraints to development are not amena- restore conipetitiveness through internal deflationary ble to change in a medium-term perspective: improved policy. Sectoral level reforms covered the banking and soil and water resource management can affect agricul- financial sector, and the human resources and the trans- tural production only gradually, and mineral and fish port sectors. resources are currently exploited at near-optimum rates. The economy was substantially liberalized in the Industrial expansion will depend to a large extent on the mid- 19X()s, and progress was made in investment plan- response of domestic and foreign investors to the indus- ning and programmning and population policy. Senegal's trial incentives and on the success of measures to reduce tax structure and administration have been simplified. production costs. In addition, Senegal faces key envi- 164 Senegal ronmental issues such as soil degradation, salinization most recent estimates for primary education are that the of agricultural land in low-lying coastal areas, and loss enrollment ratio is 56 percent, a decline from 58 percent of forest cover. It is estimated that soil fertility is declin- in 1993, while the average number of pupils per teacher ing by 3 to 5 percent a year, and forestry resources by is 58. Life expectancy increased from 45 years in 1980 1.2 percent a year. Persistent lack of funding for main- to47in 1990, whileinfantmortality declined from 116.0 tenance has resulted in serious deficiencies in transport, per 1,000 live births to 80.6 between 1975 and 1991. irrigation development, and water. However, on almost all these scores, the trend has been Sustaining the improvement in real per capita income at best stagnant in recent years, rather than improving. will hinge on the government's ability to deal effectively The government has resolved to improve access to key with the difficult problem of rapid population growth. social services, and primary education accounts for 66 The government has recently formulated a population percent of planned investments in the education sector policy, but demographic growth will remain, at least for over 1991-94, up from 42 percent in the 1981-86 plan the next decade, one of the major constraints to period. Primary health care has been expanded recently, Senegal's development efforts. Senegal's population at and in recent years allocation of resources for health care the turn of the century will be about 10 million people. has seen a shift from hospital-based and urban (45 Approximately 125,000 young adults are expected to percent in the 1981-85 period compared to an allocation join the labor force every year. Rapid population growth of 34 percent for the 1986-95 period) to health-center- also has an adverse impact on the environment. provided services and to rural areas. Finally, govern- In education, overall enrollment increased by one- ment has promoted programs of public works third between the first and the second half of the 1980s, rehabilitation and microenterprise development in a bid with female enrollment growing faster than male. The to increase employment. 165 Senegal Population mid-1993 (millions) 7.9 Income group: Lower-middle GNP per capita 1993 (US$) 750 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 | Investment to GDP ratio(%) Gross domestic investment/GDP 9.8 12.9 13.8 14.5 15.8 20 T Exports of goods and nfs/GDP 29.7 25.4 23.0 22.6 35.7 Gross domestic savings/GDP -1.4 8.1 7.5 7.6 9.7 Gross national savings/GOP -6.8 4.5 4.8 4.9 6.4 1 Current account balance/GOP -16.8 -7.8 -9.0 -9.5 -9.0 Interest payments/GOP 2.0 1.5 0.8 0.4 2.1 Total debt/GDP 99.4 65.4 59.6 67.3 98.4 0 Total debt/exports 281.6 236.3 235.9 272.2 283.2 8 89 90 91 92 93 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Shares of GDP by sector(%) Agriculture 18.7 19.9 20.0 20.1 17.2 100 Industry 17.7 18.7 19.2 19.7 20.0 Manufacturing 12.8 13.1 13.3 13.5 13.9 Services 63.6 61.4 60.8 60.2 62.9 1985-90 1990-94 1992 1993 1994 sI I (average annual growth) Agriculture 3.3 -4.9 -0.9 -5.4 -122 321 [ Industry 5.6 1.1 2.6 -2.2 3.3 Manufacturing 6.7 -1.7 -5.7 -1.4 1.0 | Services 2.8 1.2 -0.6 -0.9 6.1 1 08 89 900 91 92 93 94 GDP 3.4 0.0 -0.1 -2.1 2.0 mAgriculture afindustry ElServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth res of GDt ad GP (%) Pnvate consumption 84.6 77.3 79.2 79.5 78.7 10 T General govemment consumption 16.8 14.6 13.4 12.9 11.6 t Gross domestic investment 9.8 12.9 13.8 14.5 15.8 Exports of goods and nis 29.7 25.4 23.0 22.6 35.7 Imports of goods and nfs 40.9 30.2 29.3 29.5 41.8 1 985-90 1990-94 1992 1993 1994 (average annual growth) 2\ r \ Pnvateconsumption 2.5 1.0 4.6 -2.5 1.8 General govemment consumption 1.5 -3.6 -3.8 1.0 -13.4 0 - \ Gross domestic investment 7.7 -0.1 -3.1 1.2 0.1 91 94 Exports of goods and nfs 2.9 1.4 3.0 -1.3 2.2 -2- Imports of goods and nfs 1 3 2.4 12.3 0.0 -5.7 i Gross national product 3.5 0.1 0.0 -2.2 1.1 Gross national income 3.7 0.3 1 1 -2.5 1.8 1 -GDO 6 GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 35 - (% change) 30/ Consumer prices 13.0 0.3 -0.1 -0.6 .. 25 Wholesale prices 20 - Implicit GDP deflator 9 1 07 4.1 0.5 33.2 15- 10- Government finance s - (% of GDP) 0 =C :_ Current budget balance -1 3 0.4 0.7 04 0.4 5 89 90 91 92 93 94 Overall surplus/deficit -40 -4.7 -GDPdef. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 166 Senegal POVERTY and SOCIAL 1985-90 1990-94 Development dlamond* (annual growth rates) Life expectancy Population 2.8 2.5 Labor force 1.9 2.0 most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 49.7 per primary Infant mortality (per 1,000 live births) 66.8 capita enrollment Child malnutrition (% of children under 5) 20.1 Access to safe water (% of population) 51.2 Energy consumption per capita (kg oil equivalent) 114.5 Illiteracy (% of population age 15+) 61.7 Access to safe water Gross primary enrollment (% of school-age population) 56.0 TRADE _ _ _ _ _ _ _ _ _ (millions US$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 481 891 1,200 1,089 1,008 1,400 Fish 120 200 1.20 Fuel 51 26 . .ITI17 ~~I Manufactures 130 307 ..10 Total impons (cif) 900 1,316 .. - - 8 _0 Food 258 364 . . . Fuel and energy 195 159 . . . Capital goods 115 187 . . . Export price index (1987=100) 84 11020 Import price index (1987=100) 92 105 20 Terms ot trade (1987=100) 92 105 .. .. .. 89 90 91 92 93 94 Openness of economy (trade/GDP,%) 71 56 52 52 77 El Exports A3 Imports BALANCEofPAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GDP retio (%) Exports of goods and nfs 845 1,472 1,422 1,269 1,325 0 o r I +I- Imports of goods and nfs 1,162 1,751 1,810 1,655 1,553 -,I 8H H 90 911 9 93 94 Resource balance -318 -279 -388 -386 -228 |2 Netfactorincome -123 -197 -200 -189 -163 -3 Nei current transfers 8 29 37 40 41 -4 t Current account balance I5 Before official transfers -434 -447 -551 -535 -350 -6 After official transfers -272 -397 -551 -483 -298 7 Long-term capital inflow 155 82 103 149 234 -i Total other items (net) 103 361 468 223 65 |9 Changes in net reserves 14 -46 -20 111 -1 Memo: Reserves excluding gold (mill. US$) 5 11 12 3 Reserves including gold (mill. US$) 15 22 22 15 Conversion rate (loca/S$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export ratiosII Long-term debt/exports 227.6 189.9 195.4 221.1 239.7 100 IMF crediVexports 29.4 19.9 17.6 17.6 20.0 Short-term debt/exports 24.6 26.4 22.9 33.5 23.5 Total debt service/exports 20.8 206 13.6 8.5 25.1 75 n PNG GDP ratios . .Prv. Long-term debt/GDP 80.4 52 6 49.4 54.6 83.3 50 s . *lto. IMF credit/GDP 10.4 5.5 4.5 4.4 7.0 Short-term debt/GDP 87 7 3 5.8 8.3 8.2 25 - Long-term debt ratios Prvate nonguaranteed/long-term 0.6 2.0 1.7 1.6 1.3 Public and publicly guaranteed |9 9 92 9° 9'4 Private creditorsAong-term 13.4 6.0 3.7 3.5 2.8 HH H9 9_3 9_ 92 93 94 Official creditors/long-term 86 0 92.0 94.6 94.9 95.9 ' The aevelopment diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete 167 Seychelles S eychelles is an archipelago of some 115 islands in ment and important amounts of external savings. Most the western Indian Ocean, with a land area of 445 of the economy, with the exception of the banking sec- square kilometers and an exclusive economic tor, is publicly owned and managed, including the most zone of about 1.3 million square kilometers. An modern part of the key tourism sector. The public sector essential feature of the islands is their unique ecology, employs two-thirds of the labor force, the govern- pristine environment, and touristic attraction. Among ment's budget is about half of GDP, and government them is Aldabra, one of the last refuges of the giant land consumption is about 40 percent of GDP. The wage tortoise. Seychelles' population of about 70,000 is con- structure is dominated by public-sector wages, which centrated on the main island of Mah6 and two others promote even income distribution rather than incen- nearby and is growing at about 0.9 percent a year. The tives and efficiency. Over 1975-93 yearly net official minuscule size of the economy and its reliance on external development assistance transfers averaged about markets-foreigntradeaveraged 156percentofGDPover $200 per capita. the last five yeaus - render it particularly vulnerable to Between the mid-1970s and 1990 Seychelles' econ- external economic conditions. Seychelles has experienced omy expanded at 6.3 percent a year, driven by tourism rapid and reasonably equitable economic growth. GNPper and relatively abundant external financing, albeit with capita rose from $870 in 1976 to about $6,280 in 1993. some pauses reflecting external shocks. In 1991 the Seychelles became independent in 1976 under a coa- economy entered another cycle of a setback caused by lition government. In 1977 a coup established a one- an external shock, followed by financial difficulties party socialist state, and in 1992 the government brought on by increased public spending. Performance initiated a transition to multiparty rule. A new constitu- slipped in 1991 when tourist arrivals fell in reaction to tion was adopted in April 1993, and elections were held fears of safety during and immediately after the Persian three montlis later. Gulf war. Tourist arrivals and expenditure fell by 13 Seychlelles' main economic activities are tourism and percent and 19 percent, respectively, and real GDP t'ishing, and some agriculture and small-scale manufactur- growth fell to 2.2 percent. In 1992, although arrivals and ing. Industry and agriculture have been severely con- expenditure increased by 9.4 percent and 14 percent strained by limited land, water, and skilled labor and the respectively over 1991 levels, they remained below the simzall size of the domilestic market and remoteness of the results of 1990. The slow rebound of the critical tourism islands. With the dcevelopimient of tourism since the early sector reflects, in part, past insufficient effort to rehabili- 1970s and of port services for foreign tuna t'ishing fleets tate and upgrade hotel infrastructure and diversify tour- since the early 1980s, the role of agriculture declined ist services, and the vulnerability of the tourism industry further. The country's tropical climate and unique environ- to economic conditions in industrialized countries, no- ment attract mid- and upscale tourists. In the peak year of tably Western Europe. 1993, visitors numbered 116,000, compared with 37,000 Over 1992-93 increased public expenditures covered in 1976, an average growth rate of 6.6 percent, and gener- the negative growth impact of the decline in tourism ated somlie 17 percent of GDP. 60 percent of exports of earnings while inducing public finance and balance of goods and services, and 19 percent ot'formal employment. pavments difficulties. Real GDP growth averaged 6.2 Fishing, the source ot the second most important export. percent over the two years, driven by exceptional expen- lagged tar behind. accounting for only I percent of GDP ditures linked to the democratization process and infra- and about 8 percent of the exports of goods and services. structure for the Indian Ocean Games. At the same time, despite new revenue measures (including temporary im- Recent F.conomic Developments port surcharges and tax increases on alcohol and to- bacco) that boosted revenues by a cumulative II percent Until recently. Seychelles' development relied on eco- of GDP over the two years, the budget deficit (before nomic policies emphasizing public-sector-led develop- grants) remained about as high as in 1991 (about 5 168 Sevchelles percent of GDP). In 1991 import controls and adminis- investment management through public investment pro- trative payment delays helped temporarily contain the gramming, and improving debt management by seeking current account deficit (before grants) at 5.8 percent. most favorable terms, converting floating-rate liabilities compared with a surplus of 8 percent in 1990. A tempo- into fixed-rate debt. and reviewing debt buy-back or rary requirement imposed on exporters to surrender 30 conversion opportunities and raising public savings and percent of their gross foreign exchange earnings to the foreign reserves to provide a cushion against external central bank was eased to 15 percent in early 1992. The uncertainties. high import content of expenditures over 1992-93 ampli- The setback in the tourism sector in 1991 and the fied balance of payments difficulties. The current ac- reemergence of financial difficulties in 1992-93 drove count deficit (before grants) averaged 8.6 percent over home to the authorities the need to accelerate the expan- the two years. Short-term external trade arrears equiva- sion of the private role in the economy and adopt more lent to two months of imports were accumulated by prudent public expenditure policies. More sectors are end-1993. being opened to private participation, a new and more liberal investment law is bring prepared, and some Social Indicators parastatal assets in the hotel sector and the port have been privatized. At the same time. the authorities have Economic growth has been accompanied by significant set up a commission to propose tax reforms to encourage progress in social conditions. Seychelles has low unem- private-sector growth. In addition, sharp reductions in ployment and actually faces a shortage of skilled labor. public expenditure during fiscal 1996 should help curb Social indicators are comparable to those of higher-in- the aggregate demand overhang from 1991-93 and re- come countries. The government has sought to minimize store external sector viability. income disparities and provide equal access to education, The preservation of the environment and effective health, and housing: 75 percent of the children 6 to 14 use of human resources are Seychelles' main challenges are in school; there are 6.2 hospital beds per 1,000 of sustainable development. The government is firmly inhabitants and one physician for 1.403 people; 99 per- committed to protecting the environment and prepared cent of the population has access to basic health care; I ife in 1990 a ten-year Environmental Management Plan of expectancy at birth is almost 71 years; infant mortality is Seychelles that has received broad donor support. In 17 per 1,000, almost all children under one year of age 1994 it prepared a program for human resource devel- are immunized against the most common childhood dis- opment. Seychelles supports greater regional coopera- eases: the entire urban population and 95 percent of the tion in the area of environment - on marine pollution rural population have access to safe water; and subsi- in particular - and education, through the Indian Ocean dized housing has been made available to low-income Commission. and large families. The social expenditure programs are For the foreseeable future, Seychelles' economy will inefficient; they include transfers that leak outside target remain dependent on tourism, despite efforts to diver- groups and create disincentives to work. sify into fishing, fish processing, agriculture, light Seychelles has legislated and practiced gender equal- manufacturing, and regional transshipment and off- ity. Women enjoy equal access to education and jobs, shore services. The tourism marketing strategy is likely including management positions and official appoint- to remain aimed primarily at mid- and upscale tourists ments. In 1990, women represented 43 percent of the willing and able to pay above-average airfares and land- active labor force. ing fees. So far, Seychelles has been successful in at- tracting such tourists. Weaknesses in fiscal management Medium-Term Prospects remain a major shortcomIg. The government has formulated a medium-term The government's development objectives are to im- macroeconomic framework in the context of preparing prove the quality of life of all Seychellois and achieve itsfirstthree-yearpublic investmentprogram. Astrategy environmentally sustainable development. Its recent encouraging greater private sector investment and pro- strategic thinking has emphasized diversifying tourist duction and more efficient delivery of public sector markets and developing ecotourism to reconcile envi- services could allow Seychelles to achieve annual real ronmental constraints and growth objectives. Other growth of about 5 to 6 percent over 1995-99, supported goals include skill enhancement to raise productivity by investment equivalent to 18 to 19 percent of GDP, and faster introduction of incentives for private invest- compared with 24 percent over 1987-92. Public invest- ment and poverty reduction through social spending ment would decline from 13 percent of GDP in 1989-93 policies targeted at lower-income groups. On the fiscal to around I 0 percent over 1994-98, while private invest- side it aims for fiscal moderation through gradual disen- ment would rise from 5 to 6 percent of GDP to 8-9 gagement of the state from the economy. stronger public percent. 169 Seychelles riovisional 1994 fiscal results, including a deficit GDP, and financing it in a noninflationary way, thus of 7.8 percent of GDP, show that the government has keeping inflation below 5 percent. Together with pru- not begun to live up to the broad targets of the me- dentcreditpolicies, this would keep aggregatedemand dium-term plan in which fiscal adjustment is a key broadly in line with resource availabilities, with an element. To make up for the delayed start on adjust- average current account deficit (before official trans- ment, the authorities announced their determination fers) of the order of 5 to 6 percent of GDP, and a to pursue rigorous fiscal policies over 1995-98, limit- debt-serviceratiotoexportsofgoodsandservicesbelow ing the overall deficit to a maximum of 4 percent of 10 percent. 170 Seychelles Population mid-1993 (thousands) 72 Income group: Upper-middle GNP per capita 1993 (US$) 6,280 Indebtedness level: Less Indebted KEY RATIOS 1985 1990 1992 1993 1994 Imnvestment to GDP ratio(N.) Gross domestic investment/GDP 22.7 24.3 18.5 23.0 24.2 30 Exports of goods and nfs/GDP 68.9 68.5 63.0 62.9 65.0 Gross domestic savings/GDP 27.9 37.7 14.2 8.7 15.9 20 Gross national savings/GDP 24.4 31.8 12.7 7.3 13.7 Current account balance/GDP . 19 5 122 102 0 Interest payments/GDP 1.4 1.9 1.3 1.3 1.1 Total debt/GOP 58.0 52.3 42.4 36.7 41.5 0 Total debt/exports 82.5 74.9 66.4 56.2 63.2 ea so 90 9 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector(%) (% of GOP) Agriculture 5.8 4.6 4.4 4.1 4.1 1. T Industry 18.4 16.1 17.7 18.9 17.3 Manufacturing 9.7 9.0 9.7 11.2 Services 75.9 79.3 77.9 76.9 78.6 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture -0.3 -2.7 -6.7 -1.8 -1.0 Industry 3.2 2.9 -0.4 11.4 -9.7 Manufacturing 9.0 39 2.4 12.4 . I M 4 Semces 6.5 4.7 9.4 5.0 0.8 0 a i 90 91 92 93 94 GDP 5.6 4.1 6.9 5.8 -1.1 *Agriculture otindustry ElServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth retes of GD0 and GDP (%) Pnvate consumption 37.5 34.8 53.7 43.6 41.0 40 General govemment consumplion 34.6 27.6 32.2 47.7 43.2 j0 Gross domestic investment 22.7 24.3 18.5 23.0 24.2 Exports of goods and nfs 68.9 68.5 63.0 62.9 65.0 20 Imports of goods and nfs 63.8 55.1 67.3 77.1 73.4 1985-90 1990-94 1992 1993 1994 (average annual growth) | Private consumption -14.2 47.4 237.1 7.8 -24.7 a9 92 93 94 General govemment consumplion 3.3 7.5 -2.8 2.0 2.0 .10 Gross domestic investment 12.3 -1.2 5.4 3.8 4.3 Exports of goods and nfs 21.1 -3.9 -7.2 9.9 15.1 -20 Imports of goods and nfs 13.0 8.0 35.6 7.7 -23.3 Gross national product 5.2 5.3 10.6 5.7 -1.1 Gross national income 1.4 8.4 43.3 -5.7 -2.2 G-DI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Changeof GDPdeflatorand CPI (%) Domestic prices | (% change) 6 Consumer prces 0.8 3.9 3.2 1.3 1.9 4 Wholesale prices .. .. Implicit GDP deflator 2.3 6.4 2.9 -0.1 1.0 2 Government finance -2 as so 91 92 93 94 (%o of GDP) ,1 Current budget balance 0.2 9.1 5.4 7.1 1.0 Overall surplus/deficit -11.9 -0.8 -4.4 -5.3 -8.2 -GDPdat. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 171 Seychelles POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development dlemond Population 1.5 0.9 Ufe expectancy Labor force T most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth per primary Infant mortality (per 1,000 live births) .. capita enrollment Child malnutrition (% of children under 5) 5.7 Access to safe water (% of population) 98.5 Energy consumption per capita (kg oil equivalent) 1,680.6 Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Access to safe water TRADE (millions US$) 1985 199 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 5 28 20 22 26 25 Copra 1I . . 3 Fish 1 2 4 2 20 Manufactures 0 1Z0 1 3 1 9 Total imparts (cit) 0 8 19 23 22 IS Food 1 7 34 41 46 Fuel and energy26 3 33 4 o Capital goods 25 50 40 60 5 Export price index (1987=100) 65 Import price index (1987=100) 96 o Terms of trade (198,7=100) 67 .* a , 91 92 93 94 Openness of economy (trade/GDP,%) 133 124 130 140 138 QExports *lImports BALANCE of PAYMENTS (millions USS) Current account balance to GOP ratio (#) Exports of goods and nfs 116 256 268 287 288 2 Imports of goods and nfs 108 281 283 335 325 o _ Resource balance 9 -25 -15 -48 -37 - a 90 91 92 9a 94 Net factor income -6 -16 -4 -4 -3 Net current transfers 0 -3 -2 -2 -5 4 L Current accouni balance 4 Before official transfers 3 -44 -22 -54 -45 a After official transfers 17 -9 2 -20 -10 Long-term capital inflow 16 19 16 35 31 Total other items (net) -33 -6 -13 -12 -29 -12 Changes in net reserves 0 -4 -5 -3 8 -14 Memo: Reserves excluding gold (mill. US$) 9 17 31 36 Reserves including gold (mill. USS) 9 17 31 36 Conversion rate (local/USS) 7.1 5.3 5.1 5.2 5.2 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Stnictur of external debt (%) Long-term debt/exports 62.3 57.2 54.0 47.5 55.1 1CD IMF credit/exports 0.0 0.0 0.0 0.0 0.0 Short-term debt/exports 20.2 17.7 12.5 8.6 8.1 Total debt service/exports 7.9 8.9 7.3 6.3 4.8 75 0 PNG GDP ratios a PM. Long-term debt/GDP 43.8 39.9 34.4 31.1 36.2 m 5 Off. IMF crediVGDP 0.0 0.0 0.0 0.0 0.0 Short-term debt/GDP 14.2 12.3 7.9 5.6 5.3 Long-term debt ratios Private nonguaranteedAong-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 ° Prvate creditors/long-term 21.1 18.9 17.1 15.7 138 U U 90 91 92 93 94 Official creditorsAong-term 78.9 81.1 83.0 84.3 86.3 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average, It data are missing, the diamond will be incomplete. 172 Sierra Leone S ierra Leone is endowed with substantial mineral increasing indiscipline in public-sector management wealth, a varied agricultural resource base with eroded collection efficiency. Major cuts in capital ex- good potential for raising yields, and rich fisher- penditures followed. Investments in new social and ies. Agriculture employs most of the population physical infrastructure and maintenance virtually in low-productivity, labor-intensive farming. Rice, the ceased, causing rapid decay in facilities. Inflation accel- staple food, is grown by more than 80 percent of farmers erated, peaking at close to 170 percent in fiscal 1987. but has been imported in large quantities since the late Against this background and with foreign exchange 1970s. Coffee, cocoa, and fish are the major agricultural controls, a rapidly expanding parallel market in foreign exports. The mining sector comprises a capital-intensive exchange and trade emerged. Because of the overvalued enclave and substantial small-scale alluvial operations. official exchange rate, official diamond and gold exports It accounts for 10 percent of GDP and is the most fell sharply. Recorded imports also fell sharply, reflect- important source of foreign exchange earnings. Services ing shortages of foreign exchange. With official foreign account for about 40 percent of GDP. exchange reserves virtually exhausted and the inflow of Sierra Leone's population of 4.4 million is growing at foreign capital falling to very modest levels, the balance 2.6 percent a year. Per capita income was $150 in 1993, of payments deficit was financed mainly by the accumu- and Sierra Leone is classified as a least-developed country lation of arrears. Confronted with this deterioration, the by the United Nations. Over two-thirds of the population government negotiated a standby arrangement with the live in absolute poverty. Rural life is at a subsistence level. IMF in November 1986, supplemented by support from Infant mortality of 143 per 1,000 live births is one of the a Structural Adjustment Facility; these were suspended highest in the world, while otherkey indicators such as life in March 1987 because of expenditure overruns and expectancy of 42 years and primary school enrollment are excessive credit creation. among the lowest. The adult illiteracy rate is estimated at Faced with an increasingly difficult economic situ- 79 percent. The quality of Sierra Leone's civil service has ation, the government took measures in early 1989 to declined over the past decade in part because of a lack of stabilize the economy and address structural bottlenecks incentives for qualified staff at the senior level. and has since liberalized the exchange rate and trade, Sierra Leone's economic infrastructure deteriorated decontrolled prices and interest rates, strengthened reve- rapidly during the 1980s. Rural feeder roads are in a state nue collection and expenditure controls, and revamped of collapse; trunk roads are in poor condition. A severely mining and fishery policies. It has also begun rehabili- deteriorated power generation system has forced house- tating infrastructure and revitalizing social services. holds and firms to operate private power generators, Since April 1991 the government has also had to affecting economic activity. Only about 30 percent of address severe security problems initiated by incursions the rural population has access to safe drinking water. deep into the economically important eastern and south- During the first decade after independence in 1961 ern parts of the country by rebels based in Liberia. Since Sierra Leone's economy grew at nearly 4 percent a year. then, the security situation has shifted character, now The fiscal and foreign exchange position was healthy; taking predominantly the form of scattered banditry inflation was low. The first oil shock notwithstanding, attacks that have spread beyond those two regions. The economic growth averaged over 3 percent in the first government took major steps at the end of December half of the 1970s. GDPgrowth slowed to about I percent 1994 to upgrade its security forces and has offered to a year over 1975-80, mainly because of falling incomes negotiate with one known rebel group. from the mining sector. During the 1980s the economic situation continued to deteriorate. Budgetary revenues Recent Economic Developments fell sharply, from 16 percent of GDP in fiscal 1981 to only 5 percent in fiscal 1986. as reductions in imports The pace of economic activity has remained sluggish, and official diamond sales reduced the tax base and largely because of the impact of the rebel conflict on 173 Sierra Leone mir;ng and agricultural activities. Real GDP grew 1.5 The maintenance of strict fiscal discipline remains percent in 1993, and 1994 GDP growth is estimated at the key to stabilizing the economy. As a result of the about 3 percent, mainly as a result of good harvest and government's efforts to improve fiscal management, reviving trading activities. The low level of economic total revenues rose from 9.2 percent of GDP in fiscal activity has curtailed import demand, and the current 1989 to 14 percent in fiscal 1994. Recurrent expendi- account deficit (excluding official transfers) narrowed tures, however, increased modestly from 15.5 percent of from 12.8 percent of GDP in 1991 to 12.5 percent in GDP in fiscal 1989 to about 16 percent of GDP in fiscal 1993 and about 12.2 percent in 1994. Coffee and cocoa 1994. The overall budget deficit contracted from 9 per- exports have also suffered as the security situation af- cent of GDP in fiscal 1989 to about 6.3 percent of GDP fected production. A large proportionl of diamond and in fiscal 1994 despite an increase in war-related expen- gold exports continue to be traded in the parallel market. ditures. However, because of the impact of the security The weak demand for foreign exchange has enabled the situation on economic activity, major revenue shortfalls central bank to step up its foreign exchange purchases are anticipated in fiscal 1995. At the same time, a rise in from the commercial banks. As a result, gross reserves defense expenditures to deal with the security situation at the end of 1994 are estimated to have risen to the has put additional strains on the budget. equivalent of over three months of imports, compared Monetary policy since the beginning of the reform with only three weeks of imports in April 1992. program has been directed toward reducing money sup- ply growth to levels consistent with the inflation objec- tives and ensuring that sufficient bank credit is made available to fuel the recovery of private-sector activity. Despite the difficulties caused by the security situation, The deceleration in the rate of growth of broad money, Sierra Leone has made satisfactory progress in imple- mainly as a result of improved government fiscal opera- menting its structural adjustment program. At the first tions, contributed to the slowdown in inflation from 115 consultative group meeting for Sierra Leone in March percent in 1991 to less than 20 percent in fiscal 1994. 1994, donors commended the government's progress in Lending rates were decontrolled in April 1990. Nominal implementing a courageous reform program under dif- interest rates have continued to decline. The depressed ficult domestic and external conditions. private sector demand for credit and lack of availability of Sierra Leone has maintained a market-determined alternative financial instruments have resulted in the real exchange system since April 1990. Foreign exchange yield on treasury bills, afterbeing positivesinceJune 1992, bureaus have been established. The operation of the falling to a negative 10 percent at the end of September exchange market has improved substantially, and the 1994. Commercial bank lending rates have, however, re- private sector is now handling a larger portion of total mained positive in real terms. The Bank of Sierra Leone foreign transactions. The exchange rate in the commer- exercises monetary control through open-market opera- cial bank market has been relatively stable since May tions through weekly auctions of treasury bills. 1992: the differential between commercial bank and The government has begun a thorough review of the parallel market exchange rates is now less than 5 per- financial sector. Following a comprehensive manage- cent. The real effective exchange rate has depreciated by ment audit of the Bank of Sierra Leone the government over one-third since the leone began tloating in April initiated an institutional development program in early 1990. 1 994 aimed at strengthening its role as a central bank, Trade reform has focused on removing import and focusing on promoting monetary stability and a sound export licensing requiremients (except for gold and dia- financial structure. The central bank also initiated in late monds) and all quantitative restrictions on imports, andl 1993 a program to restructure the commercial banks and the abolition of public-enterprise trading monopolies. bolster their financial positions. Pending passage of a Duty rates on imported goods were rationalized in 1992 new banking act, the central bank has developed and and 1993 to improve administration and compliance by issued prudential bank lending and capital adequacy importers and ensure a more development-focused tariff guidelines to maintain the soundness of the banking structure. The 1993 investment code has been repealed system. and the investment incentive framework incorporated The government has initiated a comprehensive civil into the tax and customs laws. The Sierra Leone Export service reform program aimed at restoring civil service Development and Investment Corporation was estab- efficiency and capacity for delivering essential public lished in January 1994 to promote exports and invest- services. Between July 1991 and December 1994 civil ment across all sectors, and an export processing zone service employment was reduced by more than 32,000 has been established starting with the textile industry. (44 percent). mainly through the retrenchment of redun- The governnient has also simplified its export regula- dant daily workers and temporary staff and removing tory procedures. 'ghost workers from the payroll. 1 74 Sierra Leone All public enterprises are now subject to taxes and Faced with acute shortages of skilled manpower, the duties and are allowed to adjust their tariffs and prices government has taken steps to shift the responsibility for in line with costs. The government has divested its providing some services to the private sector. A semi- interest in the National Petroleum (distribution) Com- autonomous Road Authority, funded by taxes on gaso- pany, the Sierra Leone Petroleum Refining Company, line and diesel sales, has been established to manage the and the Bennimix Baby Food Company. The Public entire periodic and routine road maintenance program Enterprise Reform and Divestiture Commission has also through contracting to the private sector. Provision of tendered and renewed lease contracts for three govern- primary health care services and the management of ment-owned hotels. which has resulted in significant elementary schools have been increasingly undertaken additional revenue to the government. The sale process by NGOs, local communities, and other organizations. for two smaller hotels has commenced, and plans for The fisheries sector has considerable potential for divestment and liquidation other public enterprises are growth in the medium term, but care must be taken to being implemented. monitor yields to protect against overfishing. The Fish- Sierra Leone's broad development objectives are to eries Act and regulations were revised in September stabilize the economy and create a macroeconomic and 1994 to provide the basis for a durable fisheries manage- sectoral environment conducive to sustained private- ment regime. The government has tendered a manage- sector-led growth and poverty reduction. While it is ment contract for a fisheries control and surveillance committed to the policies needed to achieve these objec- system for a period of two years. tives, the government's capacity to develop and imple- The mining sector has a critical role in Sierra Leone's ment well-defined development strategies remains long-term economic development, and a revised Mining extremely limited and has been further complicated by Act, introduced in early 1994, provides the framework the unsettled security situation. tor mining investment, taxation, profit repatriation, and The government's strategy to combat Sierra Leone's the environmental treatment of mining activities in a widespread poverty joins policies that promote labor-in- manner that guards against land degradation, ensures tensive growth, especially macroeconomic policies sup- sound mining practices, and avoids distortive fiscal and ported by the adjustment reform program and sectoral incentive systems for the sector. A combination of con- policies with public expenditure policies and rehabilita- ducive legal and regulatory frameworks and improve- tion of institutions that over time will improve access to ments in the security situation, including removal of basic education, health care, and other social services. A military personnel from alluvial diamond mining areas, Social Action and Poverty Alleviation Unit has been set is the key to improvement in alluvial diamond mining up to screen and monitor projects carried out by NGOs production and exports by the private sector. to improve the living standards of the poor people. Women are predominant among the poor in Sierra The government's human resource development Leone and severely disadvantaged. They are more likely strategy focuses on improving the quality of education than men to be illiterate, unskilled, and malnourished; with particular emphasis on basic education, substan- their productivity is further hampered by limited access tially reducing the illiteracy rate (with special attention to credit and productive assets. In the agriculture sector, paid to female illiteracy), increasing the enrollment ratio women represent about 55 percent of the labor force and in primary education, and making relatively low-cost in urban areas, especially in the Western Area, they preventive and basic curative health care available control a large share of trade and distribution activities, throughout the country. The government has developed and some have secure incomes. Limited access to health a National Education Action Plan and a National Health facilities, especially for rural women, is being addressed Action Plan. Strengthening planning and implementa- through the Primary Health Care Program and the Na- tion capacity of the Health and Education Departments tional Health Policy. The government, women's groups, is a priority. Budget allocations for the social services and NGOs are also active in disseminating family plan- will be increased by at least 5 percent annually in real ning education and conducting awareness programs. terms over their fiscal 1994 levels in the next few years. The government is articulating sectoral strategies to Environment provide a basis for clearly defined functions and work programs for departments and units, and has begun to Preliminary findings from an initial environmental as- recruit qualified candidates under donor-funded projects sessinent point to significant problems across all sectors. from both within the country and among Sierra Salient issues include water access and sanitation, land Leoneans living abroad. Budgetary allocations for ma- degradation from large-scale and artisanal mining and terials and supplies will be brought to adequate levels. agricultural practices detrimental to sustainable agricul- Promotions will be based on merit rather than mainly on ture. deforestation, forest degradation and loss of bio-di- the length of service or political connection. versity, and marine fishing in excess of maximum 175 Sierra Leone sustainable yield. The government has prepared a Na- percent of merchandise exports, of which $25 million tional Environmental Action Plan to strengthen the represented commercial debt service. The Paris Club framework for environmental conservation and sound offered Sierra Leone debt relief on "enhanced Toronto" natural resource management. terms in November 1992 and June 1994. Payment ar- rears, largely to commercial creditors, are estimated External Debt at $430 million, including $124 million in interest arrears. Sierra Leone expects to clear these arrears Sierra Leone's external debt is estimated at about $1.4 with the aid of donors through an IDA-financed com- billion at end-1994. Sierra Leone's debt service obliga- mercial debt buyback operation planned for the first tions in 1994 amounted to about $90 million. about 76 half of 1995. 176 Sierra Leone Population mid-1993 (millions) 4.5 Income group: Low GNP per capita 1993 (US$) 150 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 lnvstmentto GDP ratio (%) Gross domestic investmenVGDP 10.0 14.0 11.7 9.2 9.1 T Exports of goods and nfs/GDP 9.7 19.7 24.7 22.4 17.4 Gross domestc savings/GDP 9.8 8.7 10.5 5.1 3.1 Gross national savings/GDP 6.3 -0.3 -3.1 -8.2 -8.0 10 Current account balance/GDP -6.5 -15.7 -14.7 -17.4 -17.0 Interest payments/GDP 0.2 0.4 1.5 0.2 1.2 Total debt/GDP 55.0 134.8 181.7 189.6 172.0 0 4 Total debt/exports 495.7 745.1 734.0 839.7 982.2 8 es 90 91 92 93 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 [ SharesofGDPbysector(%) Agriculture 44.5 38.3 ... 10 Industry 12.8 15.9 Manufacturing 3.6 6.8 .. Services 42.7 45.7 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 2.9 -6.6 -17.9 2.7 Industry 3.1 8.9 15.4 -6.7 Manufacturing -5.0 __ Services 1.6 0.3 0.5 0.9 0 88 8p980 91 92 93 94 GDP 2.8 0.7 -2.7 0.7 3.0 * Agriculture It Industry S Services GDP: EXPENDITURE (% of GDP) 1 985 1990 1992 1993 1994 Growthrate ofGDIandGDP(%) Pnvate consumption 83.0 84.7 80.2 83.7 84.4 70 General govemment consumption 7.2 6.6 9.2 11.2 12.5 60 Gross domestic investment 10.0 14.0 11.7 9.2 9.1 50 Exports of goods and nfs 9.7 19.7 24.7 22.4 17.4 Imports of goods and nfs 9.8 25.1 25.8 26.5 23.4 40 1985-90 1990-94 1992 1993 1994 20 (average annual growth) I/ Private consumption 4.5 1.3 -5.0 5.1 4.0 General govemment consumption 0.2 -7.9 -48.1 31.6 2.7 0 Gross domestic investment 0.0 1.1 39.8 -20.8 1.9 e10 Exports ot goods and nfs -5.1 5.7 43.5 -9.2 -5.8 -20 Imports of goods and nfs 1.6 5.0 34.5 0.5 -0.3 Gross national product 1.9 0.2 -2.3 1.4 3.3 4 Gross national income 2.0 -0.3 -3.5 1.1 2.5 -GDI -'-GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP detlator and CPI (%) Dome"tic prices 120 (% change) 100 Consumer prices 76.6 111.0 65.5 22.2 .. Wholesale prices 60 . .. . \ Implicit GDP deflator 85.7 79.7 102.0 32.9 18.0 40 Government finance 20 (% of GDP) 0. Current budget balance -8.6 -8.2 -4.0 -2.3 .. 99 0 91 92 93 94 Overall surplus/deficit GDP det. &-CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 177 Sierra Leone POVERTY and SOCIAL 1985-90 1990-94 F Developmeunt dibmond' (annual growth rates) I Population 2.5 2.5 Lifeexpectancy Labor force 1.2 1.5 T most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Liie expectancy at birth 39.4 per pnmary Infant mortality (per 1,000 live births) 163.6 capita enrollment Child malnutntion (% of children under 5) Access to sate water (% of population) 43.0 Energy consumption per capita (kg oil equivalent) 71.6 Illiteracy (% of population age 15+) 79.3 Access to safe water Gross primary enrollment (% of school-age populatlon) 48.0 TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) (millions US$) Total exports (fob) 139 142 146 139 120 ISO Diamonds 30 21 35 23 24 160 Cocoa 25 8 2 2 2 14 Manufactures 120... *. * Total imports (cif) 169 177 145 156 162 100 Food 56 58 57 66 69 5J ir r Fuel and energy 26 27 19 25 20 60 Capital goods 42 51 29 31 35 4 Export price index (1987=100) 109 125 113 120 109 20 import price index (1987=100) 185 205 183 202 204 Terms of trade (198 7=100) 59 61 62 59 53 ea 09 90 91 92 93 94 Openness of economy (trade/GDP, %) 19 45 50 49 41 0 Exports Ill Imports BALANCEofPAYMENTS (millions USS) 1985 1990 1992 1993 1994 Currwit account balance to GDP ratio() Exports of goods and nfs 146 155 172 164 144 - _ - _ + _ Imports of goods and nts 182 210 180 194 194 2 . 8 6 90 91 92 93 94 Resource balance -36 -55 -8 -30 -50 4 Net factor income -51 -84 -95 -98 -92 6 Net current transfers 2 5 0 0 0 8 Current account balance -10 Before official transfers -85 -135 -103 -128 -142 -12 Alter official transfers -68 -93 -66 -89 -127 -14 Long-term capital inflow 3 46 28 221 120 .16 Total other items (net) 55 51 53 -114 -111 -I Changes in net reserves 10 -4 -15 -18 118 20 MUemo: Reserves excluding gold (mill. US$) 11 5 21 33 50 Reserves including gold (mill. US$) 11 5 21 33 50 Conversion rate (local/USS) 3.6 96.7 424.0 539.9 576.2 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export ratios Long-term debt/exports 265.7 389.9 394.6 440.6 585.6 oI IMF credit/exports 69.1 69.9 53.4 50.7 55.5 Short-term debt/exports 160.8 285.3 286.0 348.5 341.1 75 Total debt service/exports 13.7 10.1 20.3 11.9 20.5 El PNG GDP ratios rl Long-term debt/GDP 29.5 70.5 97.7 99.5 102.6 a Ott. IMF credit/GDP 7.7 12.6 13.2 11.4 9.7 Short-term debt/GDP 17.8 51.6 70.8 78.7 59.7 25 Long-term debt ratios Pnvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 0 Public and publicly guaranteed 0 ° Prvate creditorsAong-term 20.6 15.7 7.8 7.2 4.3 9 60 90 91 92 93 94 Ofiicial creditorsAong-term 79.4 84.3 92.2 92.8 95.7 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. It data are missing, the diamond will be incomplete. 178 Tanzania ith an estimated GNP per capita of about $90 of revenues severely hampered infrastructure mainte- W in 1993, Tanzania is one of the poorest coun- nance. tries of the world - though a recent survey of household expenditures indicates this of- ficial estimate of GNP may be understated by as much Economic Reform as 50 percent. Covering an area of 945,000 square kilo- In 1986 the government embarked on a reform program meters just south of the equator, it has a population of to dismantle the system of pervasive economic controls about 28 million growing at 3 percent a year. The econ- and encourage more active participation of the private omy is heavily dependent on agriculture (over 50 sector. The overvalued exchange rate was progressively percent of GDP), and its diverse ecology supports culti- depreciated, culminating with the unification of the ex- vation of coffee, cotton, tea, cashew nuts, sisal, maize, change system on the basis of the market in 1993; almost rice, wheat, cassava, and tobacco. The manufacturing all administrative restrictions on exports and surrender sector is small, and the mining sector has good potential requirements for traditional export goods were elimi- but is relatively undeveloped. Tourism is one of Tanza- nated and import licenses abolished for most goods; nia's dynamic sectors, with significant growth in recent budget deficits were reduced and monetary control im- years. The large service sector is increasingly an impor- proved; interest rates were liberalized and the entry of tant source of employment. private banks encouraged; most price controls and re- After independence in 1961 Tanzania's economy, strictions on domestic marketing arrangements were burdened with a legacy of extensive poverty, depend- eliminated; investments in most sectors were opened to ence on subsistence agriculture, a small industrial base, private-sector participation, and the marketing of food and a limited number of educated and trained personnel, crops was liberalized. Programs were launched to reha- managed to grow at about 6 percent a year through the bilitate key infrastructure, particularly roads, railways, late 1960s. In 1967 the government's Arusha Declara- and ports. The economy responded well to the reform tion called for the establishment of a socialist economy. program and the accompanying increased availability of Over the next two decades, the government nationalized external resources. Official estimates indicate that both many commercial and financial firms, imposed price GDP and exports grew by more than 4 percent a year controls and restrictive marketing policies, granted ex- over 1987-94. Because the official data do not reflect clusive marketing and processing rights over agricul- informal activities, it is likely that these estimates un- tural commodities to cooperatives and marketing derstate the increase in output, particularly the rapid boards, invested in large and inefficient industrial paras- growth in small-scale industrial activities, increases in tatals, and instituted credit and interest rate controls. agricultural production, and growth in the volume of Despite progress in forging a unified nation and im- exports. proving social conditions, these policies greatly inhib- Despite the progress of reforms, the economy contin- ited private-sector development and encouraged ues to face considerable difficulties. A gradualist ap- macroeconomic instability. This, combined with succes- proach to adjustment has meant that reforms are not yet sive droughts, a costly war with Uganda, the breakup of completed. Cooperatives continue to dominate the proc- the East African Community, and a fall in the terms of essing of export crops, excessive regulations throttle trade, led to a protracted decline in output. By the private sector operations, financial services still are pro- mid- 1980s real per capita incomes were falling, indus- vided largely by inefficient public-sector banks, and trial output declined sharply, and high rates of monetary inefficient (and often bankrupt) parastatals continue to expansion increased inflation to over 30 percent. The play a major role in the industrial sector. shilling became significantly overvalued, and payment The economy does not generate sufficient savings to arrears on external debt began to mount. Social progress sustain development, and large inflows of external re- achieved in the 1970s began to be reversed, and a lack sources are required. With approximately 45 percent of 179 Tanzania the population under the age of 15, output growth may position in fiscal years 1990-92. the fiscal deficit (after not be sufficient to create the employment necessary to grants) shot up to 9 percent of GDP in fiscal 1993, and absorb the expected large increases to the labor force, fiscal performance continued to deteriorate during the much less to raise significantly the well-being of most first half of fiscal 1994. This weakened fiscal position Tanzanians. Moreover. the public sector lacks the capac- reflected widespread customs duty exemptions. ineffi- ity to cope with the challenges posed by extensive pov- cient tax administration, and a failure to control expen- erty, a rapid increase in population, a growing menace ditures. A severe drought adversely affected electrical from AIDS, deteriorating essential infrastructure, and power generation. which lowered industrial production, the disastrous state of most public services. Finally, the which contributed to the fall in tax revenues. Aid dis- recent political turmoil in neighboring Rwanda has im- bursements were less than expected because of slow posed a major burden on the Kagera region, where the implementation of projects and of the reform program. economy and surrounding environment have been dam- In January 1994 the government made a determined aged by a sudden influx of half a million refugees. effort to reestablish macroeconomic stability. It insti- tuted a cash system for controlling expenditures: no Recent Political Developments checks were to be issued without sufficient funds, and the public-sector banks were instructed not to honor After three decades of rule by one party, Tanzania has checks issued on accounts that did not contain sufficient embarked on a process of political reform. Multiparty funds. This policy, in conjunction with revenue meas- elections at the local level were successfully held in late ures, improved the fiscal balance through June 1994. 1994, and presidential and parliamentary elections are During the first half of fiscal 1995. however, failure to scheduled for October 1995. Political liberalization has control tax exemptions, evasion of import taxes. and a been a new and, in some respects, difficult experience, huge check float from the previous fiscal year led to a and it is not clear what impact the elections and poten- furtherincrease in money growth. As aresult, thegrowth tially increasing political tensions will have on the im- of the money supply and inflation have both remained plementation of economic reforms. above 30 percent. Since December 1994 the government has taken steps to increase revenue collection and ensure Regional Economic Integration more effective administration of the tax system; these actions have shown some initial success. Over the past two years, Tanzania, Kenya, and Uganda Tanzania's central development objective is to reduce have resumed active discussions toward reviving East poverty through economic growth by stimulating the African cooperation in trade, transport and communica- private sector's capacity to produce and deliver goods tions, finance, and investment, as well as regional im- and services, while limiting the role of the public sector migration and security. In November 1994 the three and strengthening its capacity to manage the economy heads of state issued a communiqu6 indicating the es- and provide essential services. tablishment of a secretariat in Arusha to facilitate East The government's program to reduce poverty is African cooperation and formulate steps toward based on three pillars: accelerating labor-absorbing strengthening regional institutions. The communique growth, increasing the level and efficiency of social also indicated the intention of the three governments to sector expenditures, and targeting interventions to assist implement the provisions of the cross-border initiative, the poorest segments of the population. Liberalization including steps to harmonize tariff rates and simplify of the agriculture sector has enhanced agricultural customs procedures and consider the possibility of growth and benefited the rural poor. A food-security forming a customs union. In addition, the Ministers of program and operation of a strategic grain reserve are Health in Kenya, Tanzania, and Uganda have consulted designed to forestall food price spikes and alleviate for two years on joint concerns in health. They have temporary shortages affecting areas of the country and recently emphasized regional elements of communica- vulnerable groups. The public-sector reform program ble disease control (e.g.. malaria), joint financing of includes a safety net for low-income workers, including regional tertiary services, and health insurance issues. a retrenchment compensation package and retraining Tanzania has also endorsed the regional Common Mar- opportunities for the civil service. The government has ket for Eastern and Southern Africa initiative, which eftec- developed a poverty profile that will enable it to tively replaces the Preferential Trade Area arrangement. strengthen policy formulation and target its programs effectively by groups of people and regions. Recent Economic Performance The medium-term goals of the government's macroe- conomic management program aim to raise the annual Macroeconomic managernent deteriorated significantly rate of economic growth from its present level of about during the past two years. After a broadly balanced 4 percent to above 6 percent. Robust agricultural growth 1 80 Tanzania is projected to combine with faster growth from indus- Improvements in the environment for private-sector try, mining, and services, particularly tourism. The gov- activities and promotion of local and foreign private ernment remains fully committed to the newly investment remain key elements of the government's liberalized exchange and trade regime and to reducing reform program. Apart from pursuing macroeconomic the current account deficit while maintaining foreign and sectoral policies and investments - including sub- reserves at a level equivalent to at least three months of stantial improvements to infrastructure - to create an imports. The principal objective of fiscal policy will be environment conducive to private investment, the gov- reestablishing macroeconomic stability through greater ernment plans to open all sectors (outside a negative list) revenue mobilization (including the collection of tax to private investment and streamline the approval pro- arrears) and strict expenditure control. Monetary policy cedures to reduce the number of steps necessary to start will be aimed at reducing inflation from over 30 percent a business. The government also plans to review its to rates prevailing in Tanzania's major trading partner system of investment incentives, and consider alterna- economies - less than 5 percent - by ensuring a tight tive means of providing incentives that would be more liquidity position in the commercial banks, maintaining transparent and automatic, and more appealing to inves- positive rates of interest in real terms, and making tors. greater use of market-based policies. The focus of agricultural policy is on enhancing A comprehensive financial sector reform program is smallholder productivity within an environmentally sus- under way and involves the restructuring and commer- tamable production system. Priority will be given to cialization of the public-sector banks with a view to improving the capability of the agricultural research ultimately privatizing them. In particular, based on the system and disseminating improved technology through results of a loan portfolio review and a diagnostic evalu- agricultural extension. Public funding will be used to ation, the government plans to finalize and begin imple- complement private activities in both these services. mentation of its medium-term restructuring program for mainly to ensure coverage of maize and other food crops the National Bank of Commerce, which will include where private funding is unlikely to be available and divesting one or more branch networks to the private where the effect on rural poverty reduction is greatest. sector and establishing a joint venture with a private In recent years, the markets for agricultural produce and financial institution to handle the bank's international inputs to production have been liberalized. Exporters of business. coffee, cotton, cashews, and tea receive the full market The government is using a rolling plan and forward value for their produce, and trade in maize and food budget process to focus scarce government resources in crops is carried out almost exclusively by the private key areas and identify a core investnment program to aid sector. The private sector is taking an ever more impor- in allocating resources to priority projects and rational- tant role in the agricultural inputs industry, supplying izing the public investment portfolio, seeds, fertilizer, and veterinary inputs. The government's civil service reform covers four The tourism and mining sectors have potential for major elements: personnel control, reducing the size of rapid growth and have exhibited dynamism under the the civil service, pay reform, and a comprehensive ra- reform program. The government intends to facilitate tionalization process on the basis of organizational and development of tourist attractions by rehabilitating and efficiency reviews of each ministry. Efforts to improve building access roads, water supply, electricity, airstrips, personnel control include the imposition of a ceiling on and telecommunications, where possible relying on pri- the number of all civil servants and implementation of vate sector initiatives. For mining, the government will a more effective personnel control system. The govern- continue to adopt policies aimed at providing an attrac- ment also plans a new salary structure in which most tive enabling environment for investors. For both these in-kind benefits will be monetized and monetary allow- sectors, environmental concerns will inform and guide ances will be included in basic wages. all policies. The parastatal sector reform program aims to im- The government has recently formulated a social prove the operational efficiency of enterprises and to sector strategy that recognizes the priority status of the reduce fiscal pressures. The program is designed to sell, social sectors in the government's agenda and the para- lease, or liquidate commercial parastatals, promote wide mount role of households in making investments in participation by nationals in the ownership and manage- human capital. The agenda also focuses government ment of businesses, and improve the efficiency of enter- resources on areas with high social payoffs, benefits to prises and reduce fiscal pressures by implementing a the poor, and greater intersectoral linkages; provides for hard budget constraint, under which commercial paras- improved accountability to communities and house- tatals receive no financial support from the budget or holds; and emphasizes measuring progress through out- other public-sector entities. comes rather than expansion of facilities. 181 Tanzania The government continues to emphasize infrastruc- Medium-Term Prospects ture maintenance and rehabilitation while undertaking selected new investments in infrastructure and energy. Tanzania is expected, if the economic reform program The second phase of its Integrated Roads Program is is vigorously implemented, to achieve considerable imn- focusing on strengthening transport administration and provements in its external position over the medium management of the road network. State-owned transport term. With strong export performance and continuation operations will be privatized where possible. Policies of favorable terms of trade, the current account deficit are being adopted to address the poor state of urban (after grants) is projected to fall from 13 percent of GDP services, giving greater voice to communities and local in fiscal 1994 to about 7 percent of GDP in fiscal 2000. administrations. In the energy sector, the government Tanzania's excessive dependence on donor funds should strategy aims at exploiting hydroelectric sources and decline, and an increasing percentage of foreign ex- developing other indigenous energy resources, such as change requirements is expected to be met from Tanza- natural gas, coal, and petroleum, in collaboration with nia's own resources. However, the availability of the private sector. The government is reviewing the foreign resources in the medium term remains a very feasibility of privatizing all or part of the power sector important concern, both to finance imports and to serv- and introducing competition in marketing and distribut- ice payments on existing debt. It is anticipated that ing petroleum products. private capital inflows will increasingly substitute for declining donor inflows as the reform program estab- Environment lishes a competitive and sound financial system, liber- alizes the trade and exchange regimes, privatizes or A recently completed national environmental action liquidates most commercial parastatals, improves the plan focused on the need for priority action in six key regulatory climate for private investment, and achieves areas: land degradation, water supply, environmental macroeconomic stability. pollution, marine and freshwater resource manage- ment, habitat conservation and loss of biological diver- External Debt sity, and deforestation. The government intends to implement a program that will include adoption of a Tanzania's debt overhang is considerable (at over 250 national environment policy, revising the legislative percent of GDP), and the debt service burden, while framework to encourage local participation in environ- high, remains manageable only because Tanzania serv- mental management and sustainable natural resource ices only multilateral debt and its rescheduled obliga- use, developing ways of assessing the environmental tions under Paris Club agreements, with most of the impact of future initiatives, strengthening environ- remaining official and commercial debt in arrears. Tan- mental education and public awareness programs, and zania has had four Paris Club reschedulings, and it is ensuring that prices for natural resources reflect their anticipated that it will soon request a further reschedul- true cost. ing of debt service owed to the Paris Club. 182 Tanzania Population mid-1993 (millions) 28.0 Income group: Low GNP per capita 1993 (US$) 90 Indebtedness level: Severely indebted KEY RATIOS 1985 1990 1992 1993 1994 FlnvettmenttoGDPratio( Gross domestic investment/GDP 17.7 43.0 48.9 50.7 .. Exports of goods and nfs/GPD 6.3 21.0 22.4 31.3 36.2 o91 Gross domestic savings/GDP 8.4 7.2 2.0 9.8 40 Gross national savings/GOP 9.2 17.0 12.5 22.0 3 Current account balance/GOP -7.5 -29.5 -33.7 -40.0 20J E Interest payments/GDP 0.6 2.6 2.9 2.8 3.1 so Total debt/GOP 61.3 265.6 284.0 317.0 303.0 a Total debUexports 951.7 1,315.0 1,275.1 1,218.8 .. 88 89 90 91 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GOP by sector (%b) (% of GDP) Agriculture 56.7 56.9 54.9 56.0 10 n Industry 9.3 13.0 15.0 14.4 .. Manufacturing 6.2 4.5 5.4 4.9 Services 34.1 30 1 30.1 29.6 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 5.0 5.9 3.5 5.7 Industry 6.4 2.4 4.4 -3.3 Manufacturing 3.6 4.9 2.1 2.1 . Services 2.8 2.7 3.2 3.9 ..88 90 9i 92 93 94 GDP 6.7 2.3 0.0 2.6 4.5 EAgriculture IMindustry oServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates o1 GDI and GOP ( Y .)) Pnvate consumption 76.2 82.3 87.6 81.6 .. 3 General govemment consumption 15.4 10.4 10.5 8.5 .. 30D A Gross domestic investment 17.7 43.0 48.9 50.7 Exports of goods and nfs 6.3 21.0 22.4 31.3 36.2 250- Imports of goods and nfs 15.6 56.7 69.4 72.2 81.6 200- 1985-90 1990-94 1992 1993 1994 Iso (average annual growth) 10-I Pnvate consumption .. .. .. .. .. so General govemment consumption .. .. Gross domestic investment 1.1 0.9 -3.5 -3.2 .. Exports of goods and nfs .. .. .. .. . - 91 92 93 94 Imports of goods and nfs .. .. Gross national product 5.0 2.6 -0.8 2.3 5.7 190 Gross national income .. ..-GD GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 40 (% change) 35 Consumer pnces 33.3 19.7 22.1 23.5 .. 30 Wholesale prices .. .. .. 20 Implicit GDP deflator 34.0 15.9 22.3 22.5 11.3 is 10' Government finance8 s (% of GDP) 0 , Current budget balance -1.9 -1.8 1.5 -75 -4.7 89 90 91 92 93 94 Overall surplus/deficit -6.4 -6.3 -2.8 -14.3 -11.2 -GDP def. -^CPI Note: Economic data refer to mainland Tanzania only. 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 183 Tanzania POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Oevelopment dlamond Population 3.2 3.0 j Life expectancy Labor force 2.9 3.0 T most recent estimate G Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 51.9 per prmary Infant mortality (per 1,000 live births) 84.2 capita enrollment Child malnutrtion (% of children under 5) 28.0 Access to sate water (% of population) 52.1 Energy consumption per capita (kg oil equivalent) 34.7 Illiteracy (% of population age 15+) Access to sate water Gross primary enrollment (% of school-age population) 68.0 1 TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) (millions USS) Total exports (fob) 326 408 401 466 562 1to00 Coff ee 119 85 60 96 115 1.0 Cotton 27 75 98 78 105 120 Manutactures 33 97 64 52 77 1 200 0IF l Total imports (cif) 999 1,364 1,513 1,465 1,505 1.0 Food 78 63 49 94 128 800 Fuel and energy 224 195 185 167 149 600 ~ lh Capital goods 434 599 701 633 657 40 Expontprice index (1987= 100) 86 117 128 143 200 Import price index (1987=100) 103 105 107 108 .. Terms of trade (1987=100) 84 111 120 132 as 89 90 91 92 §3 94 Openness of economy (trade/GDP, %) 22 78 92 103 118 ]Exoorts _ _Imports BALANCEofPAYMENTS 1985 1990 1992 1993 1994 __ (millions US$) Current account balance to GOP ratio (%) Exports of goods and nfs 445 520 567 611 0 __ + -_ I 4 Importsofgoodsandnis 1,016 1,557 1,701 1,851 -5 91 92 93 Resource balance -571 -1,037 -1,134 -1,239 . Net factor income -93 -188 -189 -172 .. 10 Net current transfers 148 461 456 463 -1 Current account balance 20 L] Before official transfers -516 -764 -866 -948 . 25 After oficial transfers -347 -234 -297 -366 L 30 L Long-term capital inflow -46 37 146 -167 .. Total other items (net) 408 253 253 410 3t Changes in net reserves -14 -57 -102 123 -138 -40 . 1 - .^._mo: Reserves excluding gold (mill. US$) 16 193 327 203 327 Reserves including gold (mill. US$) 16 193 327 203 327 Conversion rate (local/US$) 17.5 195.1 297.7 405.3 477.6 EXTERNAL DEBT 1985 1990 1992 1993 1994 Structure of external debt (%) Export rutlom Long-term debVexports 772.5 1,206.0 1.150.6 1,093.0 .. 100 IMF credit/exports 13.0 26.7 38.5 34.8 Short-term debt/exports 166.2 82.3 86.0 91.0 Total debt service/exports 47.5 44.7 53.0 25.1 .. 75 oJPNG GDP ratios tiOPrvt. Long-term debt/GDP 49.8 243.6 256.3 284.3 289.8 50 Off IMF credit/GDP 0.8 5.4 8.6 9.0 8.8 (/ Short-term debt/GDP 10.7 16.6 19.2 23.7 4.5 25 .. ' 25 Long-term debt ratios Private nonguaranteedAong-term 0 6 0.2 0 2 0.2 0.1 Public and publicly guaranteed Prvate creditors/long-term 12.6 8.0 5.9 5.6 5.4 __BB_Bg_90 ____92 _93 _94 Official creditors/tong-term 86.9 91 8 93.9 94.2 94.5 The development diamond shows four key indicators oi development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. a. Fiscal year (July to June) 184 Togo ogo is a small country of 56,800 square kilome- program that was supported by IDA and the IMF. Major ters with a population of about 3.9 million. accomplishments under the program include liberaliz- Located on the Gulf of Guinea, midway between ing food-crop marketing, reforming the foreign trade Nigeria and C6te d'Ivoire, it is relatively well regime (including eliminating export and import licens- endowed with agricultural and mineral resources. Its ing and the state trading company's import monopoly). economy has traditionally depended on primary produc- price liberalization. privatizing or liquidating 30 public tion, services activities, and exports of phosphates and enterprises, creating an export-processing zone, and cotton. Agricultural production, primarily rainfed and adopting a rolling three-year investment program. small-scale, is concentrated in staple food crops, cotton, This reform effort helped Togo achieve a substantial coffee, and cocoa and generates about 40 percent of liberalization of its economy and led to a resumption of GDP and provides the livelihood of about 75 percent of growth to 3.4 percent a year over 1984-89 despite low the population. Exports of coffee, cocoa, and cotton export commodity prices and an appreciation of the real contribute about 36 percent of domestic exports. exchange rate. The adjustment program formed a solid Togo is self-sufficient in food production, although basis for a more intensive reform effort that was under- there are significant regional disparities between the taken in 1989. wetter south and the more savanna-like north. The sec- ondary sector, dominated by phosphate production and . . a robust small-scale manufacturing sector, contributes about 20 percent of GDP. The service sector makes up In late 1990 a political crisis brought the implementation the remaining 40 percent of GDP and includes a vital of the adjustment program to a halt as the government commerce sector and a banking system, which, until came under increasing pressure to establish a multi- recently, was relatively healthy and served the entire party system. After violent street riots and mass civil sub-region. A well-developed highway network linking disobedience, a national conference convened in July the capital and the principal port, Lome, with neighbor- 1991 led to the formation of a one-year transition gov- ing Benin, Ghana, and Burkina Faso supports transit and ernment. While parliamentary and presidential elections trade activities which, because of Togo's geographical were scheduled for July 1992, political x iolence, which position and to a long period of political stability, were forced 300,000 Togolese to seek refuge in neighboring well developed until recently. Togo's economic growth countries, disturbed the elections calendar, led to a gen- potential is significant, particularly in agriculture, re- eral strike launched by the opposition and the trade gional trade and commerce, and small-scale industrial unions, and brought most economic activities to a stand- production. However, the country remains poor, with an still from November 1992 through August 1993, and estimated GDP per capita of only $340 in 1993. bilateral aid was cut off in condemnation of the lack of With phosphate mining and, later, cotton as its prin- progress in the elections. Presidential elections were cipal source of export revenues, the Togolese economy held in August 1993 after international mediation, and benefited from private-sector-led growth and financial the sitting president was reelected; legislative elections stability for a decade and a half, until the mid 1970s. in February 1994 were won by the political opposition. Buoyed by a quadrupling of phosphate prices in late The long period of political instability and the gen- 1974, the government launched a program of growth eral strike had a severe impact on Togo's economy and based on increased public investment and the creation social conditions. Real GDPfell by more than 17 percent of public enterprises, including phosphate mining and between 1991 and 1993, and economic transactions and cotton. In 1981/82, the country experienced a sharp businesses became increasingly informal. As civil ser- decline in the international prices of its major exports vants' salaries were not paid for several months and and initially failed to adjust, but over 1983-89 it imple- investment expenditures fell short of their projections, mented a broad economic stabilization and adjustment public services and infrastructure maintenance have de- 185 Togo teriorated. The north-south highway, Togo's main trans- has slowly resumed. In January 1994 the government port corridor for transit trade with the Sahelian land- reinforced the adjustment effort by devaluing, in coop- locked countries, and the feeder roads network, have eration with other CFA zone countries, the CFA franc degraded markedly. Preliminary estimates indicate a by 50 percent against the French franc. After the de- significant increase in poverty and, in some areas of the valuation the government prepared a three-year policy country, high levels of malnutrition among women and framework paper setting forth its stabilization and ad- children. Quality of, and access to. basic and preventive justment program. In 1994 Togo's economy shown health and primary education services, already ham- signs of recovery, led by a strong resumption of tradi- pered by inappropriate budget allocations and policies tional exports. Real GDP growth for 1994 is estimated before 1991, further deteriorated with the crisis, particu- to have exceeded 16 percent, reflecting a recovery of larly in rural areas. Deterioration of social conditions is secondary and tertiary activities and the effect of the also linked to severe environment degradation. franc devaluation on traditional export crops. Also, The crisis severely affected public finances. Reve- following a 29 percent upward price adjustment in the nues fell by more than 51 percent during the 1992-93 two months following the devaluation, monthly infla- period, as a result of a drastically shrunken tax base. tion has returned to moderate levels, fiscal revenues Moreover, despite a decline in investment expenditures have exceeded program targets by about 4 percent, and of about 60 percent, the overall fiscal deficit (excluding current expenditures are broadly in line with program grants) widened to 14.5 percent of GDP by the end of targets. 1993. Because of the interruption of foreign aid dis- Despite these positive signs, Togo's economic and bursements the deficit was partly financed through the political environment remains fragile; there have been accumulation of domestic and external payment arrears. outbursts of violence in recent months and the interna- By the end of 1993 domestic payment arrears increased tional community is hesitant. In addition, and despite an by about 9 percent of GDP, with more than half of this economic and fiscal revenue performance exceeding amount in unpaid salaries and social security contribu- program targets, the budgetary situation remains diffi- tions. External payment arrears amounted to 9 percent cult. of GDP. Despite an improvement in the trade account, which resulted from a greater contraction in imports Medium-Term Prospects than in exports, the drop in net foreign financing led to a sharp deterioration in the overall balance of payments. Building on opportunities stemming from the devalu- By end of 1993 reserves had fallen over 56 percent from ation, the policy framework aims at promoting a broad- the 1991 level. based, private-sector-led recovery of Togo's economy The economic and fiscal collapse also disrupted the and returning it to a sustainable growth path that will functioning of the parastatal and financial sectors. The accelerate employment creation for its rapidly growing parastatal sector, which still includes key economic ac- population and raise incomes. The government has set a tivities such as cotton and phosphate production, and all target of 6 percent annual growth over 1995-97. T he key utilities, is characterized by cross-debts and arrears. In strategies to attain these goals include restoring macro- addition, the position of commercial banks was seri- economic stability, resuming the structural adjustment ously compromised by their high exposure to the phos- program interrupted by the 1992-93 political crisis to phate company, to which they had extended short-term support a strong private-sector supply response to the credit over several years, well beyond the prudential recent devaluation, rehabilitating Togo's physical infra- ratios set by the Central Bank for the West African structure, and alleviating urgent social problems, in- States, a sharp deterioration in the quality of the private cluding the lack of essential social services and sector portfolio, and substantial government drawings widespread unemployment. The key issue in the govern- on their public enterprises' deposits to finance the ment's development agenda is how swiftly it can reori- budget deficit. As a result of the deterioration of the ent itself from heavy intervention in the economy to banking system's financial situation, the financial sector providing an enabling environment for private eco- has a reduced ability to finance a strong supply response nomic activity and the essential services and infrastruc- to the devaluation and contribute to the resumption of ture needed to underpin economic growth. Progress in growth. this area will critically depend on the speed and depth The formation of a new government in May 1994 with which the government is able to privatize the and, later, the establishment of the National Assembly phosphate company, reduce military expenditures, de- are viewed by most observers as important steps toward centralize its administration, and create a national con- restoring civil peace and opening the way to a demo- sensus on the reform agenda. cratic system of government in Togo. The economic Togo's main sources of growth are agriculture, light adjustment program, which had come to a halt in 1993, industry, and commerce. Increased agricultural produc- 186 Togo tion will depend upon productivity gains, increased crop Even before the crisis, Togo's health and education diversification, and development of unused land. indicators,whilehavingimprovedoverthelast30years, Among cash crops, cotton clearly provides the most were lower than in many other Sub-Saharan countries. promising prospects. Significant potential also exists for Reducing customs duties and taxes on essential goods increasing and diversifying production of food crops was among the first measures taken by government in such as tubers, maize, millet, and sorghum to meet early 1994 to attenuate the effect of the devaluation. It growing urban demand. Growth in small-scale industry, has also resumed a major structural and budgetary re- commerce, and transit activities, which are private-sec- form of the health system started in 1991 that aims at tor-led, will hinge on government's ability to put in place enhancing the delivery of basic services and ensuring an enabling environment and a stable macroeconomic low-cost availability of essential drugs. The government framework. Regaining its position as a regional finan- also intends to accelerate implementation of labor-inten- cial center will remain a long-term objective dependent sive public works projects - primarily priority road and on comprehensive measures to stabilize Togo's financial social infrastructure rehabilitation - to provide short- system, including a reform of public enterprises and a term employment and income-earning opportunities for restructuring of its financial sector. unskilled workers and small contractors. 187 Togo Population mid-1993 (millions) 3.9 Income group: Low GNP per capita 1993 (US$) 340 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%) Gross domestic investment/GDP 24.1 25.4 20.2 5.6 11.8 30 Exports of goods and nis/GDP 48.4 33.3 26.8 21.0 32.3 Gross domestic savings/GDP 15.4 13.6 11.1 -2.2 2.6 20 Gross national savings/GOP 10.0 12.3 10.0 -4.1 -1.1 Current account balance/GDP -12.7 -13.0 -10.3 -9.3 -13.8 10 Interest payments/GDP 5.1 2.0 0.6 0.6 3.1 Total debt/GOP 123.3 78.5 80.1 96.3 128.8 0-O Total debt/exports 230.4 216.9 267.7 386.3 388.6 88 89 90 91 92 93 94 GDP: PRODUCTION (% of GDP) 1985 1990 1992 1993 1994 Shares of GDP by sector (%) Agriculture 33.7 33.7 33.5 45.2 40.7 1o0 Industry 21.7 22.5 21.1 16.7 18.9 Manufacturing 6.7 9.9 9.5 6.5 Services 44.7 43.8 45.4 38.1 40.4 (averge anual gowth)1985-90 1990-94 1992 1993 1994 50 (average annual growth) 5 -1 16 81 s- l i | i | Agriculture 4.3 5.7 -1.3 16.6 8.1,. Industry 4.5 -11.0 -13.4 -30.0 10.6 Manufacturing 8.1 -15.0 -9.8 -40.8 7.8 Services 1.1 -9.1 -0.3 -28.9 9.2 98 89 90 91 92 93 94 GDP 2.9 -3.5 -3.6 -12.4 8.9 rAgriculture [lindustry rServices GDP: EXPENDITURE (%of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Prvate consumption 71.5 71.2 75.1 86.7 82.4 8 General govemment consumption 13.1 15.2 13.8 15.5 15.0 0 Gross domestic investment 24.1 25.4 20.2 5.6 11.8 Exports of goods and nfs 48.4 33.3 26.8 21.0 32.3 40 Imports of gooas and nfs 57.1 45.1 35.9 28.8 41.5 20 1985-90 1990-94 1992 1993 1994 o (average annual growth) 89 gD 94 Pnvate consumption 1.9 -1.6 -0.5 -4.2 2.3 120 General govemment consumption 5.8 -6.7 -11.3 -11.6 8.0 \ / Gross domestic investment 5.9 -26.1 -11.9 -68.0 63.7 Exports of goods and nfs 1.6 -10.6 -12.8 -22.7 0.1 |60 Imports of goods and nis 2.9 -17.6 -12.7 -34.9 -3.0 1 0 Gross national product 3.6 -4.0 -3.4 -13.1 7.1 Gross national income 3.4 -6.0 -5.8 -17.0 8.2 GDI - GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 ChangeofGDPdeflatorandCPl(I) Domestic prices 35 (% change) 30 Consumerprices -1.8 1.0 1.4 -1.0 25 Wholesale prices .. .. .. 20 Implicit GDP deflator 2.9 3.0 1.8 -2.8 30.6 Is 10 Government finance 0 (% of GDP) | Current budget balance 6.2 1.2 -2.2 -12.3 -11.0 .5 89 90 91 92 93 94 Overall surplus/deficit -6.1 -6.0 -5.7 -14.2 -12.7 1 -GDP del. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 188 Togo POVERTY and SOCIAL (annual growth rates) 1985-90 1990-94 Development dlamond' Population 3.1 32 Lite expectancy Labor force 2.3 2.4 T most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 55.4 per prmary Infant mortality (per 1,000 live births) 83.4 capita enrollment Child malnutrition (% of children under 5) 24.4 Access to safe water (% of population) 70.7 Energy consumption per capita (kg oil equivalent) 46.6 Illiteracy (% of population age 15+) 56.7 Gross primary enrollment (% of school-age population) 111.0 Access to sate water TRADE (millions US$) 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) Total exports (fob) 282 395 327 214 219 700 Phosphorus 95 103 79 52 69 __ Cocoa 15 15 10 5 4 Manufactures 47 150 128 75 61 X Total imports (cit) 435 607 475 290 294 40 Food 87 86 81 46 .tl 30 Fuel and energy 20 48 36 26 22 tr , Capital goods 52 131 85 61 91 200 Export price index (1.987=tOO0) 131 110 103 97 192 1 Import price index (1987=100) 113 1 06 103 105 205 Terms of trade (1987=100) 116 104 100 92 93 99 9 90 91 92 93 94 Openness of economy (trade/GDP,%) 106 78 63 50 74 E Exorons U Imports BALANCEotPAYMENTS 1985 1990 1992 1993 1994 (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 369 545 456 297 315 0 Imports of goods and nfs 436 738 612 396 414 -2 88 89 90 91 92 93 94 Resource balance -67 -193 -156 -99 -99 Net factor income -38 -30 -27 -35 -44 94 Net current transfers 8 10 9 10 8 46 Current account balance .8 Before official transfers -97 -213 -175 -125 -135 -10 After official transfers -27 -99 -94 -94 -114 Long-term capital inflow -2 62 18 3 -4 i L Total other items (net) 108 40 -10 -35 159 .14 Changes in net reserves -79 -3 86 125 -41 -16 Memo: Reserves excluding gold (mill. US$) 297 353 272 156 Reserves including gold (mill. US$) 301 358 277 161 Conversion rate (locaULIS$) 449.3 272.3 264.7 283.2 555.2 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%) Long-term debt/exports 194.1 183.1 224.7 337.3 353.3 190 IMF creditlexports 18.2 14.7 15.2 20.5 19.8 Short-term debt/exports 18.1 19.1 27.8 28.5 15.5 Total debt service/exports 27.3 14.5 7.2 8.2 27.6 75 OPNG GDP ratios - PrIv. Long-term debt/GDP 103.8 66.3 67.3 84.1 117.1 050 f Ot. IMF credit/GDP 9.7 5.3 4.5 5.1 66 Short-term debVGDP 9.7 6.9 8.3 7.1 5.1 | ' 25 .59 Long-term debt ratios Prvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed | ° 9 Private creditors/long-term 10.9 4.8 4.4 4.4 3.3 __88 89 90 91 92 93 94_l Official creditors/long-term 89.1 95.2 95.6 95.6 96.7 * The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 189 Uganda D uring the 1960s Uganda was one of the most drag on private business initiatives. In addition, a num- promising economies in Sub-Saharan Africa, ber of important products, including most export items but, starting in 1972, the economy declined and some imported goods, were price controlled. To because of political turmoil, civil war, and eco- reverse this situation, the government embarked on a nomic mismanagement. The National Resistance comprehensive policy and institutional reform program Movement, which took power in January 1986. inher- designed to deregulate the economy. eliminate direct ited an extremely difficult economic situation, with a state involvement inall butessential publicservices,and real GDP that had declined by about 20 percent between improve institutional efficiency. Price controls were 1972 and 1985. The new governmient also inherited a first removed from industrial products, then in fiscal large external debt burden, with a debt service ratio of 1992 from major crop prices, and in January 1994 from more than half of fiscal 1985 export earnings. retail petroleum prices. The government at first adopted an interventionist Price deregulation was accompanied by removing stance. introducing expansionary fiscal and monetary entry barriers to markets and dismantling state market- policies. However, these policies proved unsustainable ing boards that controlled the internal trade and export and inflation soared to triple-digit levels. In 1987. marketing of produce, coffee, and cotton. Uganda also amidst a rapidly deteriorating economic situation, the deregulated its trade and payments system. First, the government began an economic recovery program licensing of exports and imports was replaced by simple aimed at restoring macroeconomic stability, creating the registration systems, and the level and dispersion of conditions for sustained economic growth, and develop- i mport duty rates were reduced. Shortly thereafter, all ing human capital through investments in education, quantitative restrictions on imports were removed, ex- health, and other social services. The program also in- cept for those on a small negative list, and the surrender cluded widespread structural reforml. requirement on export earnings was progressively elimi- Only slow progress was made on stabilization and the nated. The market for foreign exchange was steadily reform program from 1987 to 1992. Since then, how- liberalized, the latest step being replacement of the for- ever, implementation has been strengthened and notable eign exchange auction in November 1993 with a fully successes have been achieved. Tight expenditure control liberalized interbank market. helped bring annual inflation brought down from nearly In an effort to stimulate private-sector investment and 65 percent in June 1992 to about 7 percent by the end of growth, the government has made substantial progress December 1994. Control over monetary growth was less in the politically sensitive task of returning properties effective, but the economy was able to absorb the in- expropriated under a previous regime. To improve fiscal creased money supply without excessive inflationary management and enhance the delivery of public serv- pressures. The low inflation contributed significantly to ices, the government has undertaken a wide-ranging the stability of the exchange rate and supported the civil service reform that reduced its staff from 320,000 ongoing trade and exchange liberalization. Per capita in 1990 (including ghost and temporary workers) to income in 1993 was about SI(80. around 150,000 in December 1994. In addition, all gov- ernment ministries and agencies have been reorganized Structural and Institutional Reforms and restaffed along functional lines. Concurrently, wages and salaries are being raised as rapidly as re- When the recovery program began, Uganda's economy sources permit. The army is being downsized, and when was very static and highly regulated. Parastatals domi- completed, the demobilization will represent an esti- nated nearly all sectors, inefficient state trading boards mated 50 percent reduction in the nation's military abounded, government controls circumscribed private- forces. sector activity in nearly every aspect of economic activ- A quasi-independent Uganda Revenue Authority was ity, and institutional inefficiencies were a debilitating established to improve tax administration and reduce 190 Uganda corruption,andanewUgandalnvestmentAuthoritywas from a very low base. There is also a risk that the created to facilitate private and foreign investment. The appreciation of the shilling will erode Uganda's com- government has embarked on a wide-ranging decentrali- petitiveness in external markets, which could delay zation program to devolve much of public service deliv- much-needed diversification of its export base. Uganda ery to district and local governments. Reform efforts in recently imposed a stabilization tax on coffee exports to the financial sector have concentrated on freeing interest sterilize some of the revenues. Additional import de- rates and increasing the efficiency of the banking system mand also seems to be offsetting some of the inflow. by attempting to restructure problem banks and intro- The Bank of Uganda is also building a cushion of duce competition. The government is restructuring- reserves that can be decumulated when the situation and plans to privatize - the Uganda Commercial Bank, reverses. the dominant bank in the sector with about 40 percent The primary objective of Uganda's development of all deposits, and the Cooperative Bank. In addition, strategy is to reduce poverty by generating employment through the passage of the new Banking and Financial andincomeopportunitiesthrough sustained macro- Institutions Acts, the autonomy and authority of the economic stability, strong economic growth and in- central bank have been increased to enable it to manage creasing the provision and effectiveness of public monetary policy more effectively and improve its pru- services. Poverty reduction is receiving greater attention dential supervision of commercial banks. from the government, now that much of the reform program is well under way. Economic growth is seen as Recent Economic Performance the main vehicle for poverty reduction. This has been reflected in income-generating initiatives in high-pov- Uganda's real GDP grew at an average of 5.4 percent erty areas of the country. Efforts are also being made to over fiscal years 1987-93, a gain of about 2.5 percent a target public spending on essential services (especially year in per capita terms. To a large extent this growth health, education, water, and sanitation) benefiting the was the result of bringing land and capital back into poor. production, an outcome made possible by increased Uganda has good growth potential, particularly in peace and security. More recently, growth has also been agriculture. industry, and tourism. With the current fueled by some private investment and the impact of policy and incentive framework, the economy can trade, exchange rate, and crop marketing liberalization. sustain annual growth of 5 to 6 percent. With more Preliminary indications are that real GDP may have rapid adjustment and inslitutional reforms, and higher risen as much as 6 percent in calendar 1994. There are investment, this could rise to 7 to 7.5 percent in the a number of reasons for the relatively low level of medium term. private investment, including a regulatory framework In agriculture, the greatest potential is in cash crops that is still stultifying despite substantial reforms, a for export. Apart from coffee, cotton, which was once a legacy of concern over economic and political stability, major export crop, has substantial room for expansion, poorly functioning infrastructure, the high cost of doing and present reforms aimed at deregulating and restruc- business in Uganda, and inefficiency of the banking turing this subsector to facilitate private investment system. The low level of domestic tax revenue remains should provide the impetus for rapid growth. Nontradi- a constraint to public investment, most of which is tional export crops, such as maize, beans, fish, cut flow- financed by donors. Although domestic tax revenue ers, and horticultural products, also have good potential. increased from 7.2 percent of GDP (market prices) in Manufacturing has grown rapidly over the past several fiscal 1993 to 8.2 percent in fiscal 1994, the national years and has the potential for further increases. The budget remained dependent on the shilling counterpart processing of agricultural raw materials and the produc- to donor import support. There is also an absorptive tion of consumer goods to substitute for imports seem capacity constraint on public investment. to have the best prospects in the short term. However, Coffee provides about two-thirds of Uganda's export there is a danger that the disproportionate inward orien- revenue, and the tripling of world coffee prices in June tation of manufacturing will result in stagnation in the 1994 was a major event. So far, the government has longer term. Despite substantial actions already taken to managed the boom well: inflation has actually fallen, improve the business climate, investment has been slow and the nominal exchange rate has appreciated only 4 to respond. Tourism is receiving increased attention percent since June 1994. The boom will temporarily from external investors, however, as the government ease Uganda's balance of payments problems, and pro- moves to privatize the industry. vide good returns to coffee growers and exporters. For Improving public sector management is high on the the longer term, however. Uganda will continue to de- government's agenda, and good progress has been made pend on external financing of imports vital to its growth on civil service reform. Managing the public sector is process, despite rapid growth in nontraditional exports made more difficult by parastatals, whose importance in 191 Uganda the zconomy is limited but whose drain on the budget is Medium-Term Prospects substantial; progress on privatization and public enter- prise reforms to resolve this problem has been slow. The Uganda has good prospects for economic growth. Since public sector's capacity to implement investment pro- the commitment to structural change is strong, and po- grams is limited, constraining growth in the develop- litical and social stability seem assured, no significant ment budget. The government has recently begun an downside risk to the economy is foreseen. In fact, recent extensive decentralization program to devolve public developments show a much improved economic outlook services to district and local governments. for fiscal 1995-96, due in particular to higher world coffee prices. This positive external shock is expected Environment to have direct and indirect repercussions on the econ- omy, not only in the balance of payments through higher Deforestation and degradation of Lake Victoria and exports, imports, and reserves, but also in consumption, other lakes have emerged as Uganda's most serious investment, fiscal revenues, net foreign assets, and environmental problems. Some estimates have sug- monetary growth. This in turn is expected to support gested that as much as 40 percent of the country's forests continued rapid GDP growth, perhaps of over 7 percent have been lost since the late 1950s owing to agricultural over the next two years. Although the Ugandan economy expansion and demand for timber. Lake Victoria is being is expected to continue making steady progress over the threatened by urban water pollution, overfishing, and next decade, it will, however, also continue relying the conversion of wetlands to agriculture, and the spread heavily on foreign aid. of noxious water plants threatens the lake ecosysiem's integrity. Regional plans to address the urgent problems External Debt of Lake Victoria are under preparation. In a broader context, a national environmental action plan lays out a As of December 1994 Uganda had $3.15 billion in framework for integrating environmental considerations external debt outstanding and disbursed (equivalent to into Uganda's overall economic and social development about 80 percent of 1994 GDP), which included $235 efforts.Arecently completed "State of the Environment" million in principal and interest arrears. These arrears report provides a comprehensive overview of the sector. were mainly to non-Paris Club, non-multilateral credi- District environment profiles are being prepared in a tors. About 28 percent of external debt was owed to number of districts. official bilateral creditors, half of which was owed to Paris Club creditors. Debt service payments (including IMF charges) in 1994 were equivalent to 54 percent of exports of goods and services. Multilaterals accounted In the past two years, Uganda has resumed active dis- for over half of the debt service payments that year. cussions with its neighbors in East Africa, Kenya and In 1992 Uganda adopted a well-articulated strategy Tanzania, towards reviving East African cooperation in for managing its debt. The strategy has five components: trade, transport and communications, finance, and in- year-by-year rescheduling of eligible Paris Club bilat- vestment, as well as in regional immigration and secu- eral debt incurred before June 1981 and maximum an- rity. In November 1994, the three heads of state issued nual deferral of all Paris Club bilateral debt accumulated a conimuniqui indicating the establishment of a secre- thereafter; write-off or long-term rescheduling of all tariat in Arusha to facilitate East African cooperation non-OECD bilateral debt; extension of bilateral bal- and fortimulate steps toward strengthening regional insti- ance-of-payments support to nonconcessional multilat- tutions. The communIque also indicated the intention of eral debt service; buy-back of uninsured commercial all three governimients to implement the provisions of the debt; and virtual cessation of government or govern- cross-border initiative, including steps to harmonize ment-guaranteed external borrowing on all but highly tariff rates and simplify customs procedures and to con- concessional terms. There has been progress in imple- sider the possibility of forming a customs union. menting all aspects of the strategy. 192 Uganda Population mid-1993 (millions) 18.0 Income group: Low GNP per capita 1993 (US$) 180 Indebtedness level: Severely indebted KEY RATIOS 1985 1990 1992 1993 1994 Investment to GDP ratio (%) Gross domestic investmentVGDP 7.6 11.9 15.2 14.1 12.9 20T Exports of goods and nfs/GDP 11.6 6.0 7.2 5.5 6.1 Gross domestic savings/GDP 6.7 1.0 -0.5 -1.2 1.1 Gross national savings/GDP 6.7 1.6 2.0 4.6 10 Current account balance/GDP -2.3 -9.9 -11.7 -10.8 -8.6 Interest payments/GDP 0.5 0.4 0.9 1.5 1.2 Total debt/GDP 31.6 61.5 104.7 93.0 79.2 0 Total debt/exports 303.6 1,086.1 1,553.4 1,453.0 973.8 e 8s 90 91 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 199U4 Shares of GDP by sector (%) (% of GDP) Agriculture 57.7 56.3 50.6 50.8 49.0 T00 Industry 9.2 11.5 14.0 13.6 14.3 Manufacturing 5.3 5.7 6.5 6.2 6.8 Services 33.1 32.2 35.4 35.6 36.6 1985-90 1990-94 1992 1993 1994 so (average annual growth) Agriculture 4.2 3.3 -1.1 9.5 1.7 Industry 8.8 10.2 11.2 7.5 12.9 Manufacturing 7.2 12.3 18.9 6.6 14.7 Services 5.2 7.6 7.9 7.7 6.9 0 ° ' se es 90 91 92 93 94 GDP 5.2 5.5 3.2 8.6 5.2 *Agnculture iDindustry ]Services GDP: EXPENDITURE (%/. of GOP) 1985 1990 1992 1993 1994 Growth rates ofGDland GDP (%) Private consumption 80.2 88.8 86.4 88.7 86.3 25 General govemment consumption 13.1 10.2 14.2 12.5 12.6 Gross domestic investment 7.6 11.9 15.2 14.1 12.9 20 Exports of goods and nfs 11.6 6.0 7.2 6.5 6.1 Jr, Imports of goods and nfs 12.5 16.9 22.9 20.8 17.9 1985-90 1990-94 1992 1993 1994 1' (average annual growth) | Pnvateconsumption 5.1 5.3 0.9 11.9 2.1 General govemment consumption 4.1 3.4 24.0 -11.0 5.0 0 Gross domestic investment 11.8 2.1 -6.9 4.0 7.8 99 /0 91 92 93 94 Exports of goods ano nis 2.3 8.6 17.1 -7.7 46.0 t / Imports of goods and nfs 6.6 2.3 -2.7 9.1 1.5 Gross national product 5.1 5.6 2.6 9.4 5.0 -10 Gross national income 3.7 5.2 1.9 9.8 3.7 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 ChangeofGDPdeflatorandCPI(%) Domestic prices 200 (% change) Consumer prices 157.7 33.1 52.4 6.1 190 Wholesale prces .. .. .. .. .\ Implicit GDP deflator 108.8 45.4 45.9 30.7 7.2 90 Government finance (% of GDP) 0 Current budget balance 0.3 -0.3 -4.9 -1.1 -1.8 Be9 9 91 92 93 94 Overall surplus/deficit -3.9 -5.8 -14.2 -11.1 -11.4 -GDP def. --OCPI Note 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 193 Uganda POVERTY and SOCIAL (annual growth rates) 1985-90 1990-04 Developnmnt diamond' Population 2.4 24 Life expectancy Labor force 2.8 2.9 I most recent estimate Poverty level: headcount Index (% of population) 55.0 GNP Gross Life expectancy at birth 44.5 per prmary Infant mortality (per 1,000 live births) 114.2 capita enrollment Child malnutritlon (% of children under 5) 23.3 Access to safe water (% of population) 15.2 Energy consumption per capita (kg oil equivalent) 23.4 . Illiteracy (% of population age 15+) 51.7 Access to safe water Gross primary enrollment (% of school-age population) 71.0 TRADE 1985 1990 1992 1993 1994 Export and Import levels (mill. USS) (millions USS) Total exports (fob) 3B3 210 172 157 237 eoo Coffee 353 159 117 99 152 70 Cotton 13 .. 10 5 5 GM Manufactures . Total imports (cif) 404 584 451 573 76 sW Food32 4 40 Fuel and energy 7 1 5 2 s il 3 Capital goods 19 21 2 Export price index (1987=100) 104 43 38 38 48 100 Importprice index (1987=100) 80 115 123 126 126 0 Terms of trade (198.=00) 129 38 31 30 38 88 8s 90 81 92 83 94 Openness of economy (trade/GDP, %) 24 23 30 26 24 [ Exports ru mpons BALANCEofPAYMENTS (millions US$) 1985 1990 1992 1993 1994 Current account balance to GDP rato (%) Exports of goods and nfs 408 246 195 206 317 a - - - Importsof goods and nfs 484 676 582 753 872 18 89 90 89112 93 94 Resource balance -76 -430 -387 -547 -555 Net factor income -53 -77 -87 -49 -60 -4 Net current transfers 40 78 136 241 270 LI Current account balanoeIollll Before official transfers -89 -429 -338 -355 -345 4I After official transfers -25 -276 -132 -96 -87 -10 Long-term capital inflow 73 221 40 131 185 Total other items (net) -9 46 93 -7 -20 12 Changes in net reserves -39 10 -2 -29 -79 .14 Anemo: Reserves excluding gold (mill. USS) 27 44 94 146 Reserves including gold (mill. USS) 27 44 94 146 Conversion rate (local/US$) 5.1 319.6 960.8 1,201.8 1,103.4 EXTERNAL DEBT 1985 1990 1992 1993 1994 Stnucture of extemal debti%) EXPOrt ratlo I Long-term debt/exports 216.9 909.2 1,292.1 1,244.2 860.1 100 IMF credit/exports 74.7 114.8 176.3 158.7 106.1 Short-term debt/exports 10.0 62.1 85.0 50.1 7.6 Total debt service/exports 38.4 57.7 54.6 143.6 57.6 75 o PNG GDP ratlos a PM.tI Long-term debt/GDP 22.7 51.5 87.0 79.7 70.0 so e OH. IMFcredit/GDP 7.8 6.5 11.9 10.2 8.6 Short-term debt/GDP 1.0 3.5 5.7 3.2 0.6 | Long-term debt ratloas Private nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.1 I Z Public and publicly guaranteed 8 8 Private creditorsAong-term 18.6 11.8 7.3 3.7 3.2 se as 90 91 92 )__ o _ Official creditors/tong-term 81.4 88.2 92.7 96.3 96.8 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 194 Zaire aire has the third largest population (40 million) Zaire's creditworthiness and investor confidence, the Z and the second largest area (2.35 million square rapid degradation of the country's productive assets and kilometers) in Sub-Saharan Africa. About40per- infrastructure, and the decline in living standards and cent of its population is urban. The aggregate social indicators. The true extent of economic decline is density of population is low at 17 people per square difficult to capture as economic activities have increas- kilometer. In some regions, such as Kivu, demographic ingly shifted to the informal sector. Zaire's modern growth (sometimes aggravated by the influx of immi- economy, its institutions, and its human capital have grants and refugees from neighboring countries, suffered seriously and are rapidly eroding. Over 1989- particularly following last year's events in Rwanda and 93 GDP declined by at least 30 percent. Copper produc- Burundi) is putting pressure on land, with serious con- tion declined by about 90 percent, cement production sequences for the ecology. Zaire has ample underutilized by 70 percent, the consumption of petroleum products economic potential, including an industrious work by 50 percent, and road and river traffic by about 80 force. Natural resources include the second largest rain percent; the national railways have de facto ceased forest in the world, fertile soils, ample rainfall, and operation. Agricultural production has been hit espe- considerable and varied mineral resources. Mining and cially hard by the collapse of the transport system. The processing of copper, zinc, cobalt, gold, and diamonds, only notable exception is diamonds, whose production and petroleum extraction, accounted until 1990 for has continued at about the same pace and has even about one-fifth of GDP and the bulk of export earnings. increased in the informal sector. The short-term outlook Zaire's economy is below the country's potential and for recovery is poor, and medium-term prospects are declining. Per capita GNP was estimated at $220 in 1990 uncertain. and has since fallen by at least 30 percent. After a difficult period of civil turmoil and severe economic decline following independence in 1960, production SocialIndicators expanded at an average rate of 4.9 percent in real terms Zaire's dismal economic performance affected social over 1965-73, fueled by favorable terms of trade and standards, once ahead of those in many countries in foreign investment. The current account balance was in Sub-Saharan Africa. Even before the current crisis, so- steady surplus, inflation was relatively low, and social cial indicators were declining because of inappropriate indicators improved. Over 1974-82, deteriorating terms public spending policies. In 1989 under-five mortality of trade and disruptions caused by the "zairianization" was close to 200per 1,000 livebirths; maternal mortality and nationalization of foreign-owned businesses led to was 6 per 1,000 live births; 25 percent of children and an average yearly decline in GDP of 1.5 percent and 13 percent of pregnant women were undernourished; persistent current account deficits. Expansionary public enrollment in primary education was 76 percent, down spending financed by money creation and heavy exter- from 92 percent in 1978; 77 percent of infants were not nal borrowing - much of it on nonconcessional terms immunized before their first birthday, and more than 30 and for nonviable projects - failed to stimulate growth percent of children were never immunized; half of the and fueled inflation. Over 1983-89 the government car- children lacked access to antimalaria treatment; malnu- ried out a stabilization and adjustment program, marked trition, particularly of lactating mothers and children, by hesitations and lapses, that produced mixed results. was widespread; and adult illiteracy was 45 percent. The Since early 1990 political instability has been accom- crisis that has gripped Zaire since 1990 has accelerated panied by declining production, investment and fiscal the decline in social indicators. With the exception of mobilization, unrestrained public spending financed by limited humanitarian aid, virtually all external financing monetary creation, resulting in hyperinflation and cur- in the social sectors has been discontinued, and many rency depreciation, rising current account deficits, and operations have been canceled; the already insufficient mounting external arrears. This accelerated the loss of budgetary financing of social sectors has been greatly 195 Zaire red.ced, and the ability of users and enterprises to pay declined to 6.4 percent of GDP, from 8.5 percent in for social services has been sharply curtailed. Occa- 1984-86; the external current account deficit averaged sional surveys indicate a worsening of infant mortality, 6.9 percent of GDP, 64 percent higher than in the pre- child malnutrition, and other critical social indicators. ceding three-year period; and inflation averaged 86 per- Contagious diseases once contained, such as try- cent, compared with 31 percent over 1984-86. panosomiasis. have returned due to shortages of preven- Zaire's adjustment effort failed because of poor man- tive programs and medication. Zaire is facing serious agement of the economy, not for want of external sup- risks of widespread endemic diseases and further dete- port. Over 1987-89, net official transfers totaled $1.1 rioration of its human capital, which will constrain de- billion, without taking into account substantial debt velopment for many years. relief. Traditional external assistance flows have ceased due Zaire's failure to complete a transition to democracy, the Recent Political and Economic Developments deteriorating economic and financial environment, and the accumulation of payment arrears. Official assistance Zaire's current economic debacle, rooted in long-stand- is currently limited to humanitarian aid. The country ing inappropriate policies, has accelerated during the was about $6 billion in arrears at end-1994. Foreign political crisis that has gripped the country since April private investment has esse2ntially ceased. 1990, and whose end is not yet in sight. Single-party rule has been challenged by a broad-based opposition, by Failed Adjustment, 1983-89 increasingly assertive regional and local interests, and Failed Adjustment, by a vocal press. Military-led looting in late 1991 and Between 1983 and 1989 Zaire took on-again, off-again early 1993 left behind a shattered economy and a tense stabilization an(d adjustment measures that built on the social and political climate. The political situation is economy's traditional market orientation and supported unstable, and pits the president against the most visible initiatives to strengthen public resource management, leader of a fractured opposition, who was named prime liberalize prices and trade, and improve investment and minister by a national conference in August 1992, then export in(centives. Initially. the program held promise. dismissed three months later after a confrontation with Over 1984-86. GDP growth averaged 3.3 percent. up the president over the control of the central bank and its from )0.7 percent in the preceding three years; copper monetary policies. He contested his dismissal and m ining regained profitability, and more coffee, diamond formed an opposition government. An alternative gov- and gold exports started to flow through official chan- ernment designated in April 1993 did not gain national nels. aillowing export earnings to grow by 4.8 percent a or external acceptance. year. Increa;sed pro(luctioni of foodstuffs and manufac- In April 1994 the presidential coalition and the oppo- tured goods helped re(luce annual imports by 1.1 per- sition reached agreement on constitutional arrange- cent, the government's net recourse to domestic credit ments during a transition period until elections in July decline(d to 1.1 percent of GDP, from 3 percent in the 1995, and on a transition government. Under this agree- precedinig three-yeatr period: annual inflation deceler- ment a new prime minister appointed in June 1994 ated frouii 76 percent to 24 percent: and the overall fiscal formed a new government that was recognized by the leticit (on a caish basis. after dcebt reliet) averaged 0.3 international community. This government has taken perceilt of GDP. comilpared with 2.1 percent during the steps to assume control over Zaire's public finances to previous three-year period. address urgent stabilization measures. It is too early to In late 1986 stabilization and adjustment efforts say whether these efforts will succeed. weakened. Public spending increased, and progress in Political gridlock has led to unprecedented economic exchange rate and price liberalization was partially re- and social decay. Since renouncing adjustment efforts in versed. Inability to contain public spending and improve early 1990, Zaire has been caught in a downward spiral its composition and quality also derailed a short-lived of collapsing production, investment; and exports; inap- stabilization effort in 1989. Over 1987-89, despite propriate fiscal policies resulting in hyperinflation and higher exports and external transfers, GDP growth de- accumulation of arrears; widespread unemployment and clined to 0.6 percent a year. and government nondebt increased poverty; and rapidly declining living and so- expenditure - niostly nondevelopmental -increased cial standards. Zaire's human capital has been eroded by from 6.2 percent of GDP to 1t).3 percent. Outlays in dwindling personal incomes, greatly reduced public foreign exchange (excludinig debt service and externally spending for education and health, and civil strife. The financed projects) increased six-fold to $550 million in exodus of expatriates and vanishing employment oppor- 1988; budgetary revenue other than from the national tunities in the formal sector further aggravated the situ- copper mining company GECAMINES. which tradi- ation. The dynamism of Zaire's informal economy- tionaLlly supplied up to one-third of the budget revenue, not adequately captured by official statistics -miti- 196 Zaire gated to some extent the impact of fiscal laxity and lower than in 1989, while nonwage current expenditure modern-sector decline, as did Zaire's legacy of nongov- was 64 percent higher. ernmental delivery of social services. This has slowed Since 1989 the domestic currency has depreciated by down somewhat the economic and social decline, with- over 230,000 times, from Z455 to the dollar at end- 1989 out, however, compensating fully for the shrinking for- to Z105 million per dollar (in old zaires) at end-1993. In mal economy. an attempt to contain the prohibitive cost of issuing and Between 1989 and 1993 GDP is estimated to have handling currency, alleviate thecritical shortage of bank contracted by 30 percent, exports (in SDR terms) by 52 notes, and allow the government to meet its payroll and percent, and imports by 72 percent. The destruction of other domestic financial obligations, the Bank of Zaire capital assets due to riots and looting has been estimated introduced a new zaire in October 1993. The initial at up to one-fourth of GDP. Compared with the 1987-89 parity of NZ3 per dollar was rapidly eroded by an period, in 1993 copper production declined from acceleration of government spending. Two months after 460,000 to 48,000 tons, cement production from its introduction, the new zaire was trading at NZ35 per 490,000 to 149,000 tons, and crude oil production from dollar in the interbank market, and at over NZIOO per 10 million to 8.3 million barrels. Consumption of petro- dollar on the parallel market. The two main diamond- leum products declined from 876,000 to about 400,000 producing regions have refused to accept it, and have de cubic meters, and beer sales (an acceptable proxy for the facto created an independent monetary zone where the monetary income of urban households) from 3.8 million old Zaire has remained in circulation and has maintained to 1.4 million hectoliters. its value against the dollar. Fiscal policy, spun out of control, is largely respon- The weakened government; adverse social, eco- sible for the extraordinary financial deterioration since nomic, and financial environment; shortage of local 1990. While the tax base shrank gradually from 10 to counterpart funds; and default on debt obligations have 11 percent of GDP during the 1980s to about 3 percent resulted in a rapid decline in investment. Official exter- of GDP in 1992/93, government spending surged to the nal capital disbursements were $35 million in 1993, less point where receipts cover barely 10 percent of the its than 10 percent of the $367 million disbursed in 1989. obligations and 20 percent of its cash outlays. The fiscal Since 1990 externally financed investment has virtually deficit has been financed by accumulating arrears and ceased, and private investment dried up in the wake of monetary expansion. Zaire has suspended all external the riots of September-October 1991. The Association debt service payments. External arrears reached $6 of Zairian Employers estimated the damage caused by billion at end-1994, including about $700 million in these riots at about $1 billion to enterprises alone. Sub- arrears to multilateral creditors. In 1992 and 1993 issu- sequent civil unrest and degradation of the economic ance of currency was equivalent on average to more and social environment have further eroded investor than 25 times the broad money stock at the beginning confidence. of each of these two years. As a result, inflation aver- aged more than 3,800 percent during 1991-93 and is estimated to have reached 9,800 percent in 1994. De- Short-Term Outlook spite rapidly expanding monetary financing of its Zaire's short-term outlook is poor. Drastic stabilization spending, the government accumulated sizable domes- measures are urgently needed, a difficult proposition tic payment arrears, including arrears on wages and even if a strong government were in place. Though salaries. By September 1993 arrears on wages and aware of the urgent need to impose fiscal discipline, the salaries to public sector employees (except for some the current administration appears unable to act, because of military personnel) reached up to 12 months. Moreover, its contested political legitimacy and fearing social un- the expenditure surge was concentrated on nonwage rest. Medium-term prospects are uncertain and hinge, in outlays of political institutions and the military. In 1993 particular, on the outcome of the political transition and civil service wages in dollar terms were about 20 percent the policies of the successor government. 197 Zaire Population mid-1993 (millions) 41.2 Income group: Low GNP per capita 1993 (UJS$) ..Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Inv,-estmen.t to GDP ratio(% Gross domestic investment/GDP 12.5 201T Exports of goods and nfs/GDP 27.5 . Gross domestic savings/GDP 14.4 . Gross national savings/GOP 6.5 1. Current account balance/GOP -6.8 . Interest payments/GDP 2.7 . Total debt/GDP 85.8 . .____________ Total debt/exports 307.6 444.7 .. . ..a as 8 so9 91 92 93 94 GDP: PRODUCTION (% of GDP) 1985 1 990 1992 1993 1994 Shares of GDP by sector(% Agriculture 29.9 .. . Industry 29.2 . Manufacturing 9.9 . Services 40.9 .. . 1985-90 1990-94 1992 1993 1994 50 (average annual growth) Agriculture 2.5 . Indust" -0.5 . Manufacturing -1.5 .. .0 Services 2.0 .. Ba Ba 90 91 92 93 94 GDP 0.6 . -10.6 ..UAgriculture 09Industry IiiServices GDP: EXPENDITURE______ _______ (% of GOP) ~~~~~ ~~~1985 1990 1992 1993 1994 Growth rates of GDI and GDP() Private consumption 77.9 2. General government consumption 7.7 . Gross domestic investment ~12.5 90099 a 91 92 93 94 Exports of goods and nfs 27.5 ..2 Imports of goods and nts 25.6 . 1985-90 1990-94 1992 1993 1994 (average annual growth) - Private consumption 2.5 General government consumption 6.3 . . Gross domestic investment -3.6 Exports of goods and nts -1.6 . . . 10 Imports of goods and nts 3.3 . Gross national product 2.6 .12 Gross national income 3.1 -GDI -'6-GDP PRICES end GOVERNMENT FINANCE 1985 1990 1992 1993 1994 C~hange of GD`p d-ef Iator a-nd CPI (%-) Domestic prices 2001" (% change)T Consumer prices 23.8 81.3 4,129.2 1,986.9 23,773.1 200 Wholesale prices 50 Implicit GDP deflator 25.8 . 0"0 Govemnment finance 500 (% of GDP) O.0 Current budget balance 8 0 9 2 9 Overall surplus/deficit -GDP del -'6-CPI Note 1994 data are preliminary estimates. Figures in italics are for years other than those specitied. 198 Zaire POVERTY and SOCIAL (annual growthrates) 1985-90 199G-94 |Development diamond (annual growth rates) Population 3.3 3.2 Life expectancy Labor force 2.3 2.5 T most recent estimate Poverty level: headcount index (% of population) .. GNP Gross Life expectancy at birth 52.0 per prmary Infant mortality (per 1,000 live births) 91.6 capita enrollment Child malnutrition (% of children under 5) 25.0 Access to safe water (% of population) 34.2 Energy consumption per capita (kg oil equivalent) 48 1 l Illiteracy (% of population age 15+) 28.2 Access to safe water Gross primary enrollment (% of school-age population) 70.0 TRADE (millions US$) 1985 1990 1992 1993 1994 f Export and Import levels (mill. US$) Total exports (fob) 1,853 2,139 .s0oo T Copper 712 956 Coffee 154 56 2,000- _ _ _. Manufactures . 1 1 Total imports (cif) 1,484 1,834 1 0_ Food.. . Fuel and energy . .. * * 1000O Capital goods.. .02 Export price index (1987=100) 112 137 Importpricnexiex8710) 81 112 .. * . 0 Terms of trade (1987=100) 137 122 aa as 90 91 92 93 94 Openness of economy (trade/GDP,%) 53 . Exports elmports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 1,979 2,296 .-a Imports of goods and nfs 1,844 2,447 aa as so 91 92 93 94 Resource balance 135 -151 Net factor income -569 -628 .9 Net current transfers -55 -81 Current account balance Before oflicial transfers -488 -861 After official transfers -289 -644 .. LI Long-term capital inflow -297 -31 Total other items (net) 550 756 Changes in net reserves 36 -82 26 111 -4 ,, Memo: Reserves excluding gold (mill. US$) 190 219 157 46 121 Reserves including gold (mill. US$) 335 261 166 55 131 Conversion rate (local/US$) 49.9 718.6 6.5E+05 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of external debt (%)l Long-term debtexports 247.1 389.9 100 IMF credit/exports 40.2 22.6 . .. Short-term debt/exports 20.2 32.2 Total debt service/exports 24.8 15.1 . 75 .PNG GDP ratios e Prvt. Long-term debU/GDP 68.9 50 *Otf IMFcredit/GDP 11.2 |. Short-term debt/GDP 5.6 |. 25 Long-term debt ratios Prvate nonguaranteed/long-term 0.0 0.0 0.0 0.0 0.0 Public and publicly guaranteed 0 ° Private creditors/long-term 17.9 9.9 9.5 9.5 9.4 1a a 9 90 s 9 92 93 94 Official creditors/long-term 82.1 90. 1 90 5 90.5 90.6 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 199 Zambia ambia's economy suffers from severe and long- tition and initiative. In addition, many parastatals have Z standing distortions that will require a major had an effective monopoly, resulting in high prices and long-term structural adjustment effort. Its major low quality. The manufacturing parastatals have not kept characteristics are a very high debt-service bur- up with product developments elsewhere. The tourism den, heavy reliance on a single export product -copper sector has attracted only a fraction of the potential mar- - and a history of excessive public sector direction of, ket. The gemstone parastatal has exploited only a small and direct participation in, the production of goods and portion of Zambia's tremendous potential, with most services. Soon after independence in 1964 the United exports avoiding official channels. In the public utility National Independence Party government sought to gain sector, the position is not much better. The railwavs are control of the economy through widespread nationaliza- unreliable and have lost much potential traffic to roads, tion. The economy became dominated by parastatals. the power company has been unable to maintain suffi- and a one-party state was introduced. Rising copper ciently steady voltage for the operation of sensitive prices helped the economy grow at an average rate of industrial plants, and the telecommunications service is 2.5 percent in the first decade after independence. Since substandard in areas important to business. 1975, however, falling world prices of copper and the As a result of this combination of poor policies and general deterioration in Zambia's terms of trade, cou- adverse external developments, the Zambian economy pled with the failure to develop a dynamic, diversified faced many problems in 1990. Inflation had been over economy. have caused overall economic decline. At- I 00 percent for three years: external debt was not being tempts to support continued consumption through serviced, creating large arrears to multilateral and bilat- borrowing failedl to contribute to economic growth and eral institutions; business and consumer confidence had created a severe debt problem. disappeared; a parallel market in foreign exchange was As a result. Zamilbia taces particularly difficult con- flourishing; the budget deficit was large and increasing; straints as it attempts to turn the economy around and the money supply was rising rapidly; asset holders were achieve sustainable economic growth. In particular. shifting their capital abroad and switching to foreign Zambia carries an exceptionally large external debt bur- currency for local transactions; many parastatal compa- den. Total debt at end- 1994 amounted to $6.2 billion, of nies were heavily indebted and making large losses; which $3.1 billion was multilateral and $2.7 billion private investment had collapsed; military expenditures bilateral. Excluding short-term debt. Zambia's external were rising and social sector expenditures declining; the debt represents nearly $650 per capita. one of the highest physical infrastructure was deteriorating; tax compli- ratios anywhere. A rescheduling of Zambia's Paris Club ance was low; basic goods and services were in short debt was agreed in July 1992. and further Paris Club supply; and Zambia had neither food reserves nor finan- discussions are expected later this year. In 1994, a com- cial resources to deal with natural disasters or other niercial debt buy-back operationi reduced Zambia's debt emergencies. by over $600 million. Another major constraint on Zambia's potential tor Recent Economic Developments economic growth is its heavy dependence on copper. Copper(includingcobalt)accountsfornearly85 percent The structural adjustment program begun in fiscal 1990 ot exports, contributes over 15 percent of GDP. and is combined trade policy reforms, deregulation, and ex- an himportant source of budgetary revenue. In recent change rate adjustment with stabilization policies de- years copper production has stagnated. and unless new signed to restore fiscal and balance of payment operations are undertaken. a sharp decline in copper equilibrium and price stability. Policy achievements output is projected by the end ot this decade. have been impressive. Among a host of measures, the The third major constraint is the domiiinance of the government has eliminated subsidies on maize and fer- parastatal sector and the conisequent stifling ot compe- tilizer. decontrolled prices. and revised investment laws, 2()( Zambia rules, and regulations. Zambia has completely decon- in 1994. This was a result of declines in agricultural trolled the exchange rate, freed interest rates, reduced output due to poor rains early in the year, in mining the budget deficit (excluding grants and interest) from because of technical and managerial production prob- about 7 percent of GDP in 1991 to below I percent in lems, and related manufacturing activities. There is evi- 1994, and embarked on an ambitious privatization pro- dence of some pickup in economic activity late in 1994. gram. These achievements were made despite a devas- Local cement sales rose as construction activity ex- tating drought in 1992. panded; electricity, gas, and water production grew at Zambia maintained good economic policy perform- 9.6 percent in 1994; and new businesses were being ance in 1994, particularly on fiscal and monetary policy. formed. There also were modest gains in real estate and The consumer price index, which had increased at an business services, and restaurants and hotels. average annual rate of over 100 percent in the previous four years, rose only at an annualized rate of 50 percent Medium-Term Prospects in the first half of 1994, and at 22 percent in the second half. Interest rates also fell sharply; the annualized rate Despite significant improvements in the policy environ- on treasury bills fell from over 200 percent in April to ment and frequent demonstrations of political will to 25 percent in December. Inflation and interest rates maintain the reform program, Zambia faces two major increased sharply in the first two months of 1995 be- difficulties in both the short and the medium run. First, cause of increases in the price of maize and foreign achieving sustainableeconomic growth, given Zambia's exchange. debt burden, will require very large inflows of foreign The improved fiscal performance has been aided by aid. The balance of payment position, even under the the successful operation of a cash budget system most optimistic scenarios, is expected to be so tight that adopted in 1993 and the establishment of the Zambia under the most generous Paris Club terms currently Revenue Authority in April 1994. Improved collection implemented, Zambia will continue to transfer nearly 10 performance increased the revenue-GDP ratio in 1994 percent of its domestic production abroad as debt service by two full percentage points over 1993. The rapid for the remainder of this decade and beyond. Thus, while decline in inflation and interest rates has bolstered the Zambia needs to reduce its dependence on external private sector's confidence in government and reduced assistance, the phaseout will need to be gradual, and expectations of future inflation. This should set the stage significant levels of support will still be needed in the for a renewed pace of economic activity in 1995. medium term. Second, given the tightness of the re- Significant progress has also been made on structural source constraints, the political demands for improve- reforms, although the pace of change has often been ments in living standards, and the many competing slower than expected. In privatization, legal transfers demands expected as Zambia moves toward national have occurred for ten companies, and sales agreements elections in 1996, the ability of the government to ad- have been signed for an additional four. Receipts by here to the reforn program will be tested. end-March are estimated to be S15 million. To facilitate Thus, the key to success is sustainable economic a uniform policy direction in privatization and improve growth. Domestic policies to reduce inflation and im- the transparency of parastatal management, the govern- prove public sector implementation capacity remain ment has decided to close the parastatal holding com- central to improving the prospects for growth. The most pany and transfer its remaining responsibilities to the challenging macroeconomic policy issue will be to Ministry of Finance and the Zambia Privatization achieve economic growth without reigniting inflation. Agency. Parastatals that cannot cover their costs are not This will require a concerted and sustained effort. If being supported by public funds. Liquidation proceed- Zambia can make this adjustment and hold to its current ings were begun in 1994 for both Zambia Airways and course, it should be able to break inflationary expecta- the United Bus Company. The politically difficult deci- tions and initiate a virtuous circle of lower interest rates sion to close Zambia Airways demonstrated again the and higher investment and exports, leading to lower government's strong commitment to the economic re- inflation and increased growth. form program. In the public sector management area, The pace of privatization should pick up in 1995 with considerable progress has been made in decentralizing the closing of the parastatal holding company, the service provision (particularly in health) and in devel- strengthening of the privatization agency, and public oping reorganization plans for individual ministries. flotation of the assets of some of the larger parastatals. Despite these policy reforms, output response has In public-sector management, the first 18 ministerial been uneven. After a decrease in real GDP of 2.5 percent reorganization plans should be completed and approved in 1992 because of a severe drought, and an increase of by end-June. and implementation of at least six of those 6.5 percent in 1993 as agriculture recovered, prelimi- should be begun. Decentralization of services will con- nary estimates are that real GDP declined by 5.1 percent tinue in health and education and will be started in 201 Zambia agr;:ulture. Road maintenance should take a major step drought, combined with a reorientation of social serv- forward with the proceeds of the new 30 kwacha-per-li- ices to meet widespread basic needs at the level of the ter fuel levy going directly to the recently established health center, the primary school, and the community Roads Board. An important aspect of this program will water system, will offer tangible evidence that less gov- be placing road maintenance on a more commercial ernment can also mean better government in precisely basis and making greater use of the private sector in those areas that are critical to the welfare and economic carrying out the work. prospects of the poor in Zambia. Given the substantial deterioration in the living The government has been working to reverse the standards of the average Zambian over the past 18 years. negative trends in social indicators and restructure the the government has recognized that it cannot continue delivery of social services. The thrust of the restructur- to undertake the stringent measures necessary to stabi- ing is decentralization of service delivery, recovery of lize the economy and establish the other preconditions budgetary allocations, and greater delegation of author- for economic growth without also ensuring that the bulk ity, including for policy development. Initiatives include of the population begins to experience an improvement district management in health and education; devolution in welfare. While the measures taken to promote agri- of safety-net measures to local groups, including NGOS; culture, exports, and the private sector generally should and restructuring of the water supply and sanitation lead to sustainable and, indeed, rapid growth in key sector. This approach complements the reforms de- subsectors of the economy, this impact will be neither signed to move Zambia toward a free-market economy. widespread nor dramatically apparent in the short term. Budget allocations to the social sectors increased from In contrast, a welfare safety net that builds on the suc- 28 percent of the budget in 1993 to over 33 percent in cessful approach to alleviating the impact of the 1992/93 1994 and 1995. 202 Zambia Population mid-1993 (millions) 8.9 Income group: Low GNP per capita 1993 (US$) 380 Indebtedness level: Severely Indebted KEY RATIOS 1985 1990 1992 1993 1994 Investmentto GDP ratio (%) Gross domestic investmenVGDP 14.9 17.3 14.0 10.3 9.2 20 Exports of goods and nfs/GDP 38.8 37.3 36.1 30.3 32.7 Gross domestic savings/GDP 15.4 17.8 2.2 4.6 6.3 Gross national savings/GDP 3.5 8.1 -9.0 -3.1 1 Current account balance/GDP -14.4 -11.8 -23.7 -13.1 -11.2 Interest payments/GDP 1.9 2.2 3.1 2.7 2.6 Total debt/GDP 203.2 220.2 218.1 188.2 184.5 _ Total debt/exports 477.6 539.4 582.0 638.0 549.9 69 89 90 91 92 93 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector(%) (% of GDP) Agriculture 13.1 18.1 21.3 34.4 31.9 100 Industry 42.0 45.3 43.7 37.1 33.4 Manufacturing 22.9 31.9 33.2 23.0 21.6 Services 44.9 36.6 35.0 28.4 34.7 1985-90 1990-94 1992 1993 1994 50 (average annual growth) Agriculture 3.3 2.1 -33.1 79.8 -19.9 Industry 3.1 -1.3 9.7 -8.5 -5.5 Manufacturing 7.6 -1.3 12.0 -10.5 -6.5 o Services 0.5 0.4 -0.4 0.4 2.9 0 99 89 90 91 92 93 94 GDP 2.0 -0.2 0.5 2.1 -4.1 U Agriculture ilnlndustry El Services GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rates of GDI and GDP (%) Private consumption 60.7 63.2 85.6 87.7 84.0 3 General govemment consumption 23.9 19.0 12.2 7.7 9.7 A Gross domestic investment 14.9 17.3 14.0 10.3 9.2 Exports of goods and nfs 38.8 37.3 36.1 30.3 32.7 40 Imports of goods and nfs 38.2 36.8 48.0 36.0 35.6 1985-90 1990-94 1992 1993 1994 (average annual growth) o Private consumption 5.4 10.7 79.0 14.0 10.1 90 91 General govemment consumption -0.4 -9.8 -27.9 -24.6 10.4 20 - Gross domestic investment 1.1 -14.2 -8.1 -6.8 -50.8 Exports of goods and nfs -4.0 2.4 3.5 1.1 0.6 140 Imports of goods and nfs -2.6 -1.1 28.0 -13.6 0.1 -60 Gross national product 4.5 1.0 4.3 5.2 -4.4 Gross national income 5.7 -1.9 -1.6 4.7 -2.9 -GDI -GDP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 [Change of GDP deflator nd CPI(%) Domestic prices | 200 (% change) Consumer prices 37.3 117.5 197.4 189.0 1'/ Wholesaleprices 47.2 ' 115.6 121.3 .. *. Implicit GDP deflator 41.1 104.4 159.7 180.9 49.1 50 Government finance (% of GDP) 0 Current budget balance .. -5.8 -5.4 -7.7 |9 90 91 92 93 94 Overall surplus/deficit .. -12.0 -9.2 -10.6 -GDP def. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 203 Zambia POVERTY and SOCIAL 1985-90 1990-94 Development dlemond' (annual growth rates)Jif Population 3.4 3.1 Life expectancy Labor force 3.3 3.5 most recent estimate Poverty level: headcount index (% of population) 86.0 GNP Gross Life expectancy at birth 48.3 per primary Infant mortality (per 1,000 live births) 103.0 capita enrollment Child malnutrition (% of children under 5) 26.8 Access to safe water (% of population) 58.9 Energy consumption per capita (kg oil equivalent) 145.7 I Illiteracy (% of population age 15+) 27.2 Access to safe water Gross primary enrollment (% of school-age population) 104.0 TRADE (millions US$) 1985 1990 1992 1993 1994 [Export and Import levels (mill. USS) Total exports (fob) 871 1,263 1,111 949 1.035 1.6s T Copper 401 1,055 867 734 1 40 #N/A 1 7 1 7 8 7 20 Manufactures . ., Total imports (cif) 834 1.084 1,302 950 928 1.0 Food 23 9 e Fuel and energy 122 119 53 47 .. e Capital goods16 4540 Export price index k(1987=100) - 200 Import price index (f987= 100) .. . Terms of trade (19b7=100) Be 59 0 91 92 93 94 Openness of economy (trade/GDP, %) 77 74 84 66 68 o Exports oD Imports BALANCE of PAYMENTS 1985 1900 1992 1993t 1904 (millions USS) Current account balance to GDP ratio (%) Exports of goods and nfs 950 1,343 1,193 1,064 1,168 T Imports of goods and nfs 969 1,369 1,585 1,261 1,557 9 5 s 91 92 93 94 Resource balance -19 -26 -392 -197 -389 . _ Net factor income -267 -319 -328 -255 .. I Net current transfers -38 -43 -33 -19 0 to . Current account balance Before official transfers -324 -388 -753 -471 -389 1s After official transfers -271 -93 -117 -87 -36 Long-term capital inflow 281 -308 -169 -185 -122 -20I Total other items (net) -467 46 381 310 269 Changes in net reserves 456 355 -95 -38 -117 -25 Memo: Reserves excluding gold (mill. US$) 200 193 . 192 Reserves including gold (mill. US$) 201 201 , 192 Conversion rate (locai/US$) 3.1 34.5 178.9 452.8 670.8 EXTERNAL DEBT Export ratios 1985 1990 1992 1993 1994 Structure of exterral debt (%) Long-term debt/exports 323.6 361.5 396.8 439.7 421.7 1 IMF credit/exports 83.6 70.7 71.0 73.0 66.5 Short-term debt/exports 70.5 107.2 114.2 125.2 61.6 Total debt service/exports 14.4 15.1 29.5 32.8 19.1 75 oPNG GDP ratios * Prvt. Long-term debt/GDP 137.6 147.6 148.7 129.8 141.5 so m Onf. IMF credit/GDP 35.5 28.8 26.6 21.6 22.3 Short-term debt/GDP 30.0 43.8 42.8 36.9 20.7 Long-term debt ratios Private nonguaranteedAong-term 0.0 0.0 0.3 0.3 0.5 - o Public and publicly guaranteed I Prvate creditors/long-term 18.5 9.8 7.5 7.1 2.7 8 s 91 92 93 94 Official creditors/long-term 81.5 90.1 92.2 92.6 96.7 * The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete. 204 Zimbabwe imbabwe is a landlocked country of about outpaced the expansion of employment opportunities so Z 390,000 square kilometers bordered by Mozam- that by the end of the 1980s only one in three school bique on the east, Botswana on the southwest, leavers was being absorbed into the formal sector each Zambia on the northwest, and the Republic of year. Most of the growth in formal employment during South Africa on the south. Estimated GNP per capita was the 1980s was in the public sector. After a period of large $520 in 1993. The population reached 10.7 million in foreign borrowing in the early 1980s, the current ac- mid-1993, with agrowth rate of about 2.8 percenta year. count deficit of the balance of payments was kept in At independence in 1980 Zimbabwe faced a number check through a strict system of direct foreign exchange of difficult issues as the population expected rapid pro- allocations to avoid excessive foreign borrowing and gress in redressing severe inequalities in income, capi- debt buildup. The debt-service ratio rose to around 35 tal, land holding, and access to social services. The percent for the period 1985-88, due to a hump in repay- economy was diversified and had good potential for ment obligations to commercial banks and the IMF, growth, but physical infrastructure and the capital stock before falling back to the low 20s for 1989 and 1990. were depleted because of foreign exchange shortages However, the resulting shortages of imported goods during the previous 15 years and the effects of the war constrained investment and productivity. of liberation. On the human capital side, there were significant shortages of skilled labor, largely because of The Move to Adjustment - 1990 and 1991 the emigration of white Zimbabweans and the educa- tional policies of the pre-independence government. Fi- Toward the end of the 1980s it became increasingly clear nally, the government faced internal and external that sustained income growth would require fundamental security problems that affected both business confi- changes in economic management. In particular, the fiscal dence and the transport of exports and imports. deficit had to be reduced to a sustainable level, trade policy Government effectively left intact the inherited eco- had to be liberalized, and domestic regulations had to be nomic structure, with predominantly private ownership greatly reduced. Bolstered by the successful elections of of productive sectors, and maintained an extensive sys- 1990, government prepared a wide-ranging program of tem of economic controls. To promote growth, it sharply policy reform outlined in a "Framework for Economic increased foreign exchange allocations in 1980 and Reform, 1991-1995." This document was distributed 1981, raised agricultural producer prices, and invested widely within the country and presented to the country's heavily in infrastructure. To promote equity, it expanded donors in early 1991. The adjustment program addresses education and health services, increased minimum the key policy constraints that have hampered Zimbabwe's wages, reoriented agricultural services toward commu- development in the 1980s and will increase public sector nal smallholder areas, and introduced an agricultural efficiency, private sector development, and employment resettlement program. The combination of these policies creation. Its main components are fiscal deficit reduction and very favorable weather conditions resulted in bumper and monetary policy reform, trade liberalization, deregu- crops and an economic boom in 1980 and 1981, with GDP lation of private-sector activities, sector-specific policy growth averaging 10 percent each year, but then unsustain- initiatives, and measures to alleviate the impact of reforms able external and internal imbalances developed. on vulnerable groups. The program constitutes a move- Zimbabwe's development strategy produced mixed ment from pervasive direct controls to market forces and results during the 1980s. While it made great strides in is an appropriate blend of structural reforms and macroe- education, health and smallholder agriculture, per capita conomic stabilization measures. Its fundamental objec- income remained stagnant because of disappointing eco- tive is the improvement of living conditions, especially nomic growth that averaged about 3.2 percent. Private for the poorest segments of society. investment as a share of GDP fell to below 10 percent There was a good beginning to structural adjustment in the mid- 1980s before recovering. Labor-force growth in 1991. First, a system of open general import licensing, 205 Zimbabwe am..enting to 15 percent of' imports. was established, adverse economic circumstances, provides an indication and the export retention schemile was increased to 15 of the government's commitment to adjustment. percent of export earnings to provide additional incen- As a result of the drought, Zimbabwe's GDP fell by tives to exports and access to license-free imports. To 8 percent in 1992, with agricultural sector output falling support demand management measures in maintaining by 25 percent. Manufacturing output also fell because a reasonable balance of payneints position, the real of the combined effect of agricultural input shortages, a depreciation of the exchange rate was accelerated. Sec- drastic decline in domestic demand, shortages of power ond. the government accelerated its program of fiscal and water, and the tight credit policies implemented to reform by adopting a budget that would reduce the contain inflation and support the balance of payments. deficit from 1(0.7 percent ol' GDP in fiscal 1991 to 7.1 Despite this, inflation continued at about 40 percent, percent of GDP for t'iscal 1992. Third. initial steps were fueled by agricultural commodity shortages and the taken to liberalize marketing and pricing, and the Labor government's decision to pass on to consumers in- Relations Act was amended to formalize a transparent creases in producer and import prices for agricultural and quick mechanism for retrenching labor. foodstuffs. Real incomes and consumption fell, as While good progress was thus made in initiating the wages did not keep pace with the much higher cost of adjustment process. macroeconlomiiic balances deteriorated living. At the end of 1992 about 4 million people, 40 during the later part ol' 1991. The current account of the percent of Zimbabwe's population, were receiving free balance of payments deteriorated, f'rom 4.2 percent of GDP food, inmposing a major burden on the budget. in 1990 to 8.7 percent of GD)P in 1991. Export receipts Because of the unprecedented need for food imports remained sluggish, due to disappointing agricultural ex- and much lower exports of agricultural products, external port performance, resulting trom helow-average rainfall balances deteriorated sharply during 1992. The current and the world economic slowdown, aggravated by the account deficit rose to 15 percent of GDP, and the accu- Persian Gulf crisis. Imports grew rapidly because of a large mulation of external debt was much higher than antici- pent-up demand for newly t'reed imports and speculation pated, rising from $2.9 billion at the end of 1990 to $3.5 about further exchange rate mioveinents. The authorities billion. 62 percent of GDP, at the end of 1992. The fiscal initially hesitated in tightening monetary policy, but deficit did not fall as expected in fiscal 1993, in part when pressure on foreign exchange mounted, decisive because the government undertook to provide every steps were taken during the second half of 1991 to small-scale farmer with a minimum amount of seed and contain aggregate demand. Money supply growth was fertilizer with which to grow a crop in the 1992/93 slowed, interest rates were liberalized and became posi- season. Monetary and credit policy remained tight, and tive in real terms, and an aggressive exchange rate interest rates remained positive in real terms at around 35 policy resulted in a 35 percent real depreciation of the percent. After the major depreciation of the Zimbabwe Zimbabwe dollar between July and September 1991. dollar in the third quarter of 1991, the nominal exchange Despite the emergence of these stabilization prob- rate was held constant during 1992, before falling by lems, there were indicationls that strujctural improve- another 20 percent between December 1992 and February ments were taking hold in 1(991. Investment increased, 1993. Large amountsofbilateral andmultilateral financial and nontraditional exports, such as horticultural prod- support were disbursed during 1992 to assistZimbabwe in ucts. textiles, and garments. showed a significant in- its drought relief and recovery program and to ensure that crease in real terms, albeit iromii a relatively low base. its economic reform program remained on track. However, the supply response was less than expected. Continued investment licensine and excessive reula- Recovery in 1993 and 1994 tion of marketing and pricing were recognized as in- pediments to reaping the t'ull benet'ith of foreign trade The 1992/93 rainy season was a good one, and this liberalization and fiscal reform. It was also felt that outcomes, together with supportive prices and a pro- further action needed to be taken to shield the poor and gram to ensure that farmers had the necessary inputs, other vulnerable groups froim transitional hardships, resulted in substantial recovery. The maize crop was partly to improve the longer-terni sustainability of the about 2.5 million tons, more than enough to meet current reform progranm needs, cotton production returned to predrought levels, and water resources were replenished. The 1993-94 Dealing with Drought in 1992 rainy season was also good, though there were patches of drought, with the result being another maize crop in Southern Africa was hit in 19(2 by the worst drought this excess of 2 million tons. The recovery of livestock, century. and this miore than otIset the economic benefits sugar. and tree-crop industries has been spread over the arising from the policy adlutnilents undertaken in 1991 two seasons. but with the exception of cattle numbers in and 1992. That the program was continued. despite the communal areas is back to prel 992 levels. 2106 Zimbabwe However, while the agricultural sector rebounded including Export Retention Scheme entitlements, are no from the drought, overall GDP growth remained modest longer subject to investment sanctioning. To further at an estimated 2 percent in 1993. This was largely due encourage foreign investimient, government now allows to continued depression in manufacturing caused by automatic and unrestricted remittance of dividends ac- slowly recovering domestic demand, compounded by cruing to any foreign investment made in Zimbabwe the continued tight monetary policy and the resulting after May 1, 1993, provided such dividends are remitted high interest rates. Inflation fell from about 46 percent through the Export Retention Scheme market. Foreign late in 1992 to about 20 percent during the second half investment made after September 1979 is eligible for of 1993 and has remained there. The fiscal deficit for unrestricted repatriation of the foreign exchange in- fiscal 1993 exceeded 11 percent of GDP as drought-re- jected as capital in the project. provided the Foreign lated expenditures continued until the harvesting of the Currency Accounts or Export Retention Scheme market 1993 crop in April-May, and revenues remained de- is used for repatriation. Significant real cuts in non- pressed on account of the economic recession. The drought-related expeniditures were effected during fiscal planned containment of expenditure yielded a projected 1993. Government's successful drought relief program fiscal deficit for fiscal 1994 of 5.8 percent of GDP. This created a major burden on public resources, in terms of was designed to reduce domestic borrowing by govern- both budgetary expenses and manpower needs. This ment, ease pressure on interest rates, and support the resulted in specific programils dealing with the social needed recovery of private sector investment. dimensions of adjustment receiving less attention than The balance of payments improved dramatically in originally expected. Nevertheless, an effective program 1993 despite a sharp fall in the prices of Zimbabwe's for exempting the poor from school fees was introduced main exports - chrome, other minerals, and tobacco. in 1992. as well as an appropriate income threshold Stagnant export earnings, combined with severely de- established for the exemption of health fees. Unfortu- pressed import levels on account of the domestic reces- nately, the health exemption system has not operated as sion, resulted in a reduction of the current account effectively as planned. deficit to about 5 percent of GDP. The improvement in the balance of payments continued into 1994, as there Employment and Poverty was a sharp recovery in the value of agricultural and mining exports, with increases recorded in the prices of Average per capita incomes have been stagnant since the tobacco, coffee, gold, nickel, copper, and tin. Preliini- early 1980s, but there have been significant poverty-re- nary estimates indicate a 16 percent increase in the U.S. lated improvements in two areas. A supportive policy on dollar value of merchandise export earnings. Merchan- agricultural pricing and a reorientation of agricultural dise imports grew atabout7 percent inrU.S.dollarterms. services toward the communal areas have improved As a result, the current account deficit narrowed to $210 smallholder incomes, apart from in drought years. There million, or an estimated 3.8 percent of GDP. The im- has also been a substantial expansion of basic services in provement in the current account, together with a sig- health, family planning, education, and urban services. nificant increase in portfolio and direct investment, has Inadequate employment growth has become a major resulted in a substantial accumulation of external re- concern in Zimbabwe. Although there are 200,000 new serves, estimated at $680 million, or about five months entrants to the work force each year, formal employment of merchandise import cover. has expanded very slowly. This problem will be eased Despite the serious economic and social difficulties somewhat as structural reforimis and deregulation lead to created by the devastating drought, Zimbabwe contin- an expansion of small and medium enterprises. ued with structural adjustment in 1993 and 1994. Import liberalization proceeded in line with program targets. External Debt The Export Retention Scheme rate was increased to 50 percent in April 1993 and then replaced by Foreign Assuming that gradual but decisive structural reforms Currency Accounts in January 1994 and exporters retain- take place. Zimbabwe's outstanding debt is projected to ing 60 percent of their foreign exchange earnings. In July increase to between 70 and 75 percent of GDP in 1994 1994 the exchange rate was unified, and exporters were and 1995 and to decline thereafter. Long-term debt serv- allowed to retain 100 percent of export earnings. Decon- icing rose to 28 percent of exports in 1992 and is pro- trol and adjustment of prices proceeded more quickly jected to rise to 31 percent in 1993 before falling back to than targeted. Cabinet approval for price increases is now about 23 percent by 1995, provided a large share of the confined to only three commodities: maize meal, vege- external finance needed is provided on a concessional table oil, and some fertilizer compounds. and long-term basis. Some commercial borrowing will Investment licensing was relaxed in April 1993 so be needed, although most of the financial requirement is investments made with "own foreigti exchange funds," expected to come fronm multilateral and bilateral donors. 207 Zimbabwe Population mid-1993 (millions) 10.7 Income group: Low GNP per capita 1993 (US$) 520 Indebtedness level: Moderately Indebted KEY RATIOS 1985 1990 1992 1993 1994 InvementtoGDPratio Gross domestic investment/GDP 19.8 24.2 24.3 22.5 30 T Exports of goods and nfs/GDP 28.8 29.4 36.4 34.3 38.7 Gross domestic savings/GDP 21.0 24.9 12.4 16.8 20. i 5 l l l ii ¶ Gross national savings/GOP 17.2 20.3 7.6 12.7 . Current account balance/GDP -3.4 -3.8 -16.8 -5.1 -39 10 ~ ~ 7 0 Interest payments/GDP 2.8 2.2 3.1 3.0 3.4 | ljlI Ilil I | Total debV/GOP 53.4 47.9 79.6 73.8 80.4 Qul i.lhI 111lIllIt- Total debt/exports 186.9 159.1 215.5 207.0 192.9 8s s 91 92 I 94 GDP: PRODUCTION 1985 1990 1992 1993 1994 Shares of GDP by sector (%) (% of GDP) I--- Agriculture 20.2 16.4 10.7 15.2 n n Industry 32.6 37.5 44.4 36.4 Manutacturing 22.9 26.4 31.1 29.8 Services 47.2 46.2 44.9 48.4 1985-90 1990-94 1992 1993 1994 50 (average annual growth) Agriculture -0.8 1.6 -24.4 48.5 industry 4.2 -3.6 -6.8 -5.0 . Manufacturing 4.4 -5.6 -9.5 -8.3 . ° ss .9 3 Services 4.0 1.7 -1.5 1.90 8 a as 9s 91 92 93 94 GDP 4.0 1.1 -5.3 4.6 4.4 BAgriculture IOlndustry lServices GDP: EXPENDITURE (% of GDP) 1985 1990 1992 1993 1994 Growth rate. of GDI and GDP (%) Pnvate consumption 57.5 51.4 64.9 64.4 140 General govemment consumption 21.5 23.7 22.7 18.8 120 Gross domestic investment 19.8 24.2 24.3 22.5 Exports of goods and nfs 28.8 29.4 36.4 34.3 38.7 1ut Imports of goods and nfs 27.6 28.7 48.3 40.0 36.4 as 1985-90 1990-94 1992 1993 1994 60 (average annual growth) Pnvate consumption 2.8 1.3 8.9 -11.8 40 General govemment consumption 3.4 -3.7 -11.0 -0.4 20 Gross domestic investment 76 02 -16.3 10.2 -2.6 | Exports of goods and nis 3.2 4 5 -2.8 13.7 12.7 0I Imports of goods and nts 4.7 -0.7 3.1 -12.7 -3.2 as 90 93 as Gross national product 3.9 0.7 -5.9 5.6 2.3 .20 Gross national income 4.2 -0.7 -8.8 1.5 4.3 | GDI *-GP PRICES and GOVERNMENT FINANCE 1985 1990 1992 1993 1994 Change of GDP deflator and CPI (%) Domestic prices 45 (% change) 40 Consumer prices 8.5 17.4 42.1 27 6 30 Wholesale prices . 25 Implicit GDP deflator 5.3 17.6 26.1 36.2 15.8 20 1 5 I0 Government finance s (% of GDP) 0 o Current budget balance -4 8 -0.5 -2.5 -2.5 . 99 90 91 92 93 94 Overall surplus/deficit -GDPdet. -CPI Note: 1994 data are preliminary estimates. Figures in italics are for years other than those specified. 208 Zimbabwe POVERTY and SOCIAL 1985-90 1990-94 |Development diamond' (annual growth rates) L e Life expctn c Population 3.3 2.7 Uife expectancy Labor force 2.8 3.0 most recent estimate Poverty level: headcount index (% of population) 25.5 GNP Gross Life expectancy at birth 53.1 per primary Infant mortality (per 1,000 live births) 66.6 capita enrollment Child malnutrition (% of children under 5) 10.0 Access to safe water (% of population) 35.5 Energy consumption per capita (kg oil equivalent) 471.3 Illiteracy (% ofpopulation age 15+) 33.1 Accessto safe water Gross primary enrollment (% of school-age population) 119.0 A TRADE 1985 1990 1992 1993 1994 1Export and import levels (mill. USS) (millions USS)i Total exports (fob) 1,124 1,753 1.531 1,584 .. 2.500 Cotton 225 395 450 366 Gold 124 239 164 234 .. 2000 Manufactures 315 648 580 Total imports (cif) 1,060 1,739 2,048 . 1,500 Food 37 42 318 Fuel and energy 226 275 251 ..00 Capital goods 298 690 808 ..0 Export price index (1987=100) 84 150 142 129 Import price index (1987=100) 80 110 107 0 Terms of trade (1987=100) 106 137 133 . ..88 89 90 91 92 93 94 Openness of economy (trade/GDP,.) 56 58 85 74 75 E Exports [Simports BALANCE of PAYMENTS 1985 1990 1992 1993 1994 (millions US$) Current account balance to GDP ratio (%) Exports of goods and nfs 1,229 2,018 1,836 1,952 2,224 2 Imports of goods and nfs 1,211 2,002 2,437 2,011 2,089 o -l Resource balance 18 16 -601 -59 135 -2 88 9o 91 92 93 94 Net factor income -126 -272 -283 -255 -366 4 - Net current transfers -45 -2 40 26 22 - Current account balance 8 Before official transfers -153 -258 -844 -288 -209 .10t After official translers -98 -150 -602 -107 -24 -12 Long-term capital inflow 50 165 387 287 364 -14 Total other items (net) 148 -34 88 -6 38 16-. Changes in net reserves -100 19 127 -174 -378 .181 Memo: Reserves excluding gold (mill. US$) 93 149 222 432 405 Reserves including gold (mill. US$) 345 295 404 628 585 Conversion rate (locallUS$) 1.6 2.4 5.1 6.5 8.2 EXTERNAL DEBT Export ratios 11985 1990 1992 1993 1994 Structure of extrnal debt(#) Long-term debt/exports 142.6 129.9 165.9 163.2 148.4 100 IMFcredit/exports 20.4 0.3 11.6 14.0 14.0 Short-term debUexports 23.8 29.0 38.0 29.8 30.5 75 Total debt service/exports 32.7 23.1 32.2 31.1 27.6 l PNG GDP ratios DPNvt. Long-term debt/GDP 40.8 39.1 61.2 58.2 61.9 so 1O1f. IMF credit/GDP 5.8 0.1 4.3 5.0 5.8 Short-term debtlGDP 6.8 8.7 14.0 10.6 12.7 25- Long-term debt ratios Private nonguaranteed/long-term 3.5 7.0 9.6 8.1 5.5 Public and publicly guaranteed 0. . I I Private creditors/long-term 58.7 36.1 29.0 21.7 17.5 98 890 91 92 93 94 Official creditors/long-term 37.8 56.9 61.4 70.3 76.9 The development diamond shows four key indicators of development in the country (in bold) compared with its income-group average. It data are missing, the diamond will be incomplete. 209 Technical Notes T he tables and graphs that follow each country text Key Ratios provide a uniform statistical framework for ana- lyzing country economic performance. Most Key ratios are calculated as percentage shares of GDP data are consistent with other World Bank publi- or exports at current prices. The numerator of each ratio cations, such as World Tables, World Debt Tables, and is defined below. The denominators (GDP and exports) the World Developmenit Report. Some data are recent are defined in the sections on production and balance of estimates from national publications that may not conform payments. to international concepts and definitions, but are consid- Gross domestic investmenit consists of outlays on ered to be useful in placing country policy decisions in additions to the fixed assets of the economy plus net context. These differences are generally not considered changes in the level of inventories. analytically significant for a particular country. Exports (imports) of goods and nonfactor services represent the value of all goods and nonfactor services Population provided to (and from) the rest of the world; they include Population numbers for mid-*1993 are from a variety merchandise, freight, insurance, travel, and other non- n. - ..factor services. The value of factor services, such as of sources, including the UN Population Division, na- investment income, interest, and labor income, is ex- tional statistical offices, and World Bank country depart- ments. Note that refugees not permanently settled in the cluded. Current transfers are also excluded. mentsNofe thasy arefugeesnotperally aonsder settoe part of Gross domestic savings are calculated by deducting country of asylum are generally considered to be part of oa osmto rmGP country~~~~~~~~~~ t otal consumption from GDP. the population of their country of origin. Gross national savings equal gross domestic savings Guross National Product (GNP) plus net factor income and net current private transfers from abroad. GNP measures the total domestic and foreign value Current account balance after official transfers is the added claimed by residents. It comprises GDP (defined difference between (a) exports of goods and services below) plus net factor income from abroad, which is the (factor and nonfactor) as well as inflows of unrequited income residents receive from abroad for factor services transfers (private and official) and (b) imports of goods (labor and capital) less similar payments made to non- and services as well as all unrequited transfers to the rest residents who contributed to the domestic economy. of the world. Current account balance before official GNP per capita figures in U.S. dollars are calculated tranisfers is the current account balance that treats net according to the WorldBatikAtlas method of conversion official unrequited transfers as akin to official capi- from national currency to U.S. dollar terms. The Atlas tal movements. The difference between the two bal- conversion factor for any year is the average of a coun- ance of payment measures is essentially foreign aid try's exchange rate for that year and for the two preced- in the form of grants, technical assistance, and food ing years, adjusted for differences in relative inflation aid, which, for most developing countries, tends to between the country and the G-5 countries (France, make current account deficits smaller than the fi- Germany, Japan, the United Kingdom, and the United nancing requirement. The key ratio presented here is States). This three-year average smooths fluctuations in the current account balance before official transfers. prices and exchange rates for each country. To derive Interest payments (on long-term debt) are the actual GNP per capita, the resulting GNP in U.S. dollars is amounts of interest paid in foreign currency, goods, or divided by the midyear population for the relevant year. services by the borrower during the year. For income group and indebtedness level definitions, Total debt includes total outstanding external debt see the two classification tables at the back of the (long- and short-term debt and the use of IMF book. credit). 210 GDP: Production flated by the import price index) less actual exports of goods and services in constant prices. In the sections on production and expenditure. ra- tios of GDP are calculated from data in current prices, Prices and Government Finance and growth rates are calculated from data in constant Consumerprices referto prices of goods and services prices. Shares in production indicate the ratios of each used for private consumption of households. sector's value added to GDP at basic or purchaser Wholesale prices (or producer prices for some coun- values (market prices). tries) refer to prices of items at the first important Agriculture covers forestry, livestock, hunting, and commercial transaction. Preference is given to producer fishing, as well as agriculture. In developing countries prices because the concept, weighting pattern, and cov- with high levels of subsistence farming, much agricul- erage are more consistent with accounting and industrial tural production is either not exchanged or not ex- production statistics. The price index covers a mixture changed for money. This increases the difficulty of of prices of agricultural and industrial goods at various measuring the contribution of agriculture to GDP and stages of production and distribution. reduces the reliability and comparability of such num- Implicit GDP deflator is an overall measure of price bers. performance in the economy, derived by dividing the Industry comprises mining and quarrying; manufac- current price estimate of GDP at market prices by the turing (also reported as a separate subgroup); construc- constant price estimate of GDP. tion; and electricity, gas. and water. Current budget balance is the excess of current reve- Services comprise all other branches of economic nue over current expenditure. activity. The share for services includes imputed bank Overall surplusrdeficit is total revenue and all grants service charges, import duties, and any statistical dis- received, less the sum of total expenditure and govern- crepancies noted by national compilers. ment lending minus repayment. GDP at purchaser values (market prices) measures the total output of goods and services for final use Poverty and Social Indicators produced by residents and nonresidents, regardless of the allocation to domestic and foreign claims. It is cal- Population - see above. culated without making deductions for depreciation of Labor force comprises "economically active" per- fabricated assets or depletion and degradation of natural sons, including armed forces and unemployed but ex- resources.The estimate of GDP used for ratio calcula- cluding homemakers and other unpaid caregivers and tions in the section GDP production is on the same basis students. as the components at purchaser values or at factor cost. Poverty level headcount index is estimated as the proportion of population under the poverty line. The GDP: Expenditure poverty lines are country-specific and are not compara- Private consumption is the market value of all ble across countries. goods and services, including durable products (such Energy consumption per capita is the annual con- as cars, washing machines, and home computers) pur- sumption of commercial primary energy (coal, lignite, chased or received as income in kind by households r petroleum, natural gas, and hydro-, nuclear, and geo- chaned nonprofeitedas instiion, as wl as s cosumehlds thermal electricity) in kilograms of oil equivalent per and nonprofit institutions, as well as self-consumed capita. products. It excludes purchases of dwellings but in- cita. , , ~~~~~~~~~~~~~~Infant mortality rate Is the number of deaths of in- cludes the imputed rent for owner-occupied dwell- fants under one year of age per 1,000 live births in a ings. given year. The data are from the UN Population Divi- General government consumption includes all cur- sion. The rate for 1993 is a linear interpolator between rent expenditure for purchases of goods and services by the projected 1990-94 and 1995-99 rates. all levels of government. All expenditure on national the proeced190-4fnd195-9tats Access to safe water Is the percentage of population defense and security is regarded as consumption expen- with reasonable access to safe water supply (includes diture. treated surface waters or untreated but uncontaminated Gross domestic investment - see Key Ratios. . water such as that from springs, sanitary wells, and Exports/limports of goods and nonfactor services- protected boreholes). In an urban area this may be a See Key ratios. public fountain or standpost not more than 200 meters GNP - see above. away. In rural areas it implies that members of the GNY. or gross national income in constant prices is household do not have to spend a disproportionate part derived as the sum of GNP and the terms of trade of the day fetching water. The definition of safe has adjustment. The latter is equal to capacity to import changed over time. (value of exports of goods and nonfactor services de- 211 Child malnutritioni (under 5) is the percentage of Trade children under five years with a deficiency or an excess of nutrients that interferes with health and genetic po- The section includes information on export and im- tential for growth. Methods of assessment vary, but the port values and prices, with additional value data on the most commonly used are: less than 80 percent of the two main export commodities and major categories of standard weight for age; less than minus two standard imports. The categorization of exports and imports fol- deviations from the 50th percentile of the weight-for- lows the Standard International Trade Classification age reference population; or the Gomez scale of malnu- (SITC), Series M, No. 34, Revision I. Note that in some trition. cases. (for example, fuel), the export subcategory may Illiteracy (% of population age 15+) is the proportion be listed more than once. These represent different forms of the population 15 years of age and older who cannot. of the commodity and are therefore shown separately. with understanding, both read and write a short simple Total exports (f.o.b.)/imports (c.i.f.) cover, with statement of everyday life. This is only one of the three some exceptions, international movements of goods widely accepted definitions, and its application is sub- across customs borders. Exports are valued f.o.b. (free ject to significant qualifiers in a number of countries. on board) and imports c.i.f. (cost, insurance, and freight) The data for the most recent estimates are from the unless otherwise specified in the foregoing sources. illiteracy estimates and projections prepared in 1989 by Food covers the commodities in SITC Sections 0, 1. UNESCO. More recent information and a modified and 4 and Division 22 (food and live animals, beverages model have been used; therefore, the data for 1990 are and tobacco, animal and vegetable oils and fats, oil- not strictly consistent with those published in previous seeds, oil nuts, and oil kernels). years. Manufactures comprise commodities in SITC Sec- Grossprimary enrollment(%school-agepopulationt) tions 5 through 9 (chemicals and related products, is the gross enrollment of all ages at the primary level as a basic manufactures, machinery and transport equip- percentage of school-age children as defined by each coun- ment, other manufactured articles and goods not try. Although many countries consider primary school-age elsewhere classified) excluding Division 68 (nonfer- to be 6-11 years, others use different age groups. Gross rous metals). enrollment may be reported in excess of 100 percent it Fuel and energy comprise commodities in SITC Sec- some pupils are younger or older than the country's stand- tion 3 (mineral fuels and lubricants and related materi- ard range of primary school age. als). The development diamond portrays relationships Capital goods comprise commodities in SITC Sec- among four socioeconomic indicators for a given coun- tion 7 (machinery and transport equipment). try and compares them with the average of the country's Export/import price indexes are price indexes for income group. Life expectancy, gross primary enroll- measuring changes in the aggregate price level of a ment, access to safe water, and GNP per capita are country's merchandise exports and imports over presented, one on each axis, and then connected (with a time. bold line) to form a polygon-the "diamond." The shape Terms of trade is the relative level of export prices of the diamond can thus easily be compared with the compared with import prices, calculated as the ratio of income group to which it belongs. The averages for each a country's index of average export price to the average income group are indexed, and the reference diamond import price index. represented by a fine line. Any point outside the refer- Opentness of econiotmy is the sum ot exports and ence diamond represents a value better than the group imports of goods and nonfactor services as a share of average, and any point inside the reference diamond GI)P. represents a value below the group average. Where data are not available, only part of the diamond appears. Balance of Payments Since the refcrence diamond represents different values in different income groups, comparisons should be lim- Rtsioso ited to the same income group. see Key Ratos. Life expectancy at birlit is the number of years a Resouirce balantce is exports of goods and nonfactor Life expectanicY at birthl Is the number of years a newborn infant would live if prevailing patterns of mor- services minus imports of goods and nonfactor services. newborn minant would live If prevailing patterns of mor- Nefcoinmesthiconerevdfomaod r ~~~~~~~~~~Net facto)r inlcome iS the income received from abroad tality at the time of its birth were to stay the same for factor services (labor and capital) less similar pay- throughout its life. The data are from the UN Population Division. As an infant mortality rate, the most recent mentc etononed estimate is a linear interpolation between projected domestic economy. 1990-94 and 1995-99 rates. Ne current transfers are private net transfer pay- GNP per capita - see above. ments-between private persons and nonofficial organi- zations of the reporting country and the rest of the 212 world-that carry no provisions for repayment. In- cost of, or capacity for, servicing debt in terms of the cluded are workers' remittances; transfers by migrants; foreign exchange or output forgone. External debt indi- gifts, dowries, and inheritances; and alimony and other cators are shown for the end of the year specified. The support remittances. Net current transfers are equal to exports reported in this section include goods and all the unrequited transfers of income from nonresidents to services and workers' remittances. residents nminus the unrequited transfers from residents Lonig-term debt is defined as debt that has an original to nonresidents. or extended maturity of more than one year and that is Current accounit balaiticc - see Key Ratios. owed to nonresidents and repayable in foreign currency, Long-termii capital inflow comprises changes, apart goods. or services. Long-term external debt has three from valuation adjustments, in residents' long-term for- components: eign liabilities less their long-term assets. excluding any long-term~ ~ it.n clsife asrsre.. Public debt IS an external obligation of a public long-termoer itets classified a preservhe s, ni of shor debtor, including the national government, a po- Totl he iems(nt)coprie hesu of shrt ltical subdivision (or an agency of either), and term capital. errors and omissions. and capital transac- alomusic (odies tions not included elsewhere. autonomous public bodies. Chatiges in niet reserves comprise the net change in a * Publicly guaranteed debt is an external obligation country's holdings of international reserves resulting of a private debtor that is guaranteed for repay- from transactions on the current and capital accounts. ment by a public entity. These include changes in holdinigs of monetary gold, . Private non guaranteeddebtisanexternalobliga- SDRs, reserve position in the International Monetary tion of a private debtor that is not guaranteed for Fund, foreign exchange assets, and other claims on nonresidents that are available to the central authority. The measure is net of liabilities constituting foreign Private creditors include bonds that are either pub- authorities' reserves, and counterpart items for valuation licly issued or privately placed; loans from private of monetary gold and SDRs. which are reported sepa- banks and other private commercial institutions; cred- rately in IMF sources. its from manufacturers-exporters, for example; and Resenves excludintg gold comprise a country's mone- bank credits covered by a guarantee of an export tary authorities' (central bank, currency boards. ex- credit agency. change stabilization funds, and treasuries) holdings of Official creditors include loans from international SDRs, reserve position in the International Monetary organizations (multilateral loans), loans from govern- Fund, and foreign exchange. ments and their agencies, loans from autonomous Reserves iticluditig gold comilprise international re- bodies, and direct loans from official export credit serves including gold and official holdings of gold val- agencies. ued at year-end London market price. IMFcredit denotes repurchase obligations to the IMF Cotiversion rate (local currency units/US$) is the with respect to all uses of IMF resources, excluding official exchange rate as reported in the lIntermiational those resulting from drawings in the reserve tranche. It Fitiaticial Statistics (line rfl/wf - period average). ex- comprises purchases outstanding under the credit pressed in units of national currency per U.S. dollar, tranches, including enlarged access resources and all the although an alternative rate is used when the official special facilities (the buffer stock, compensatory financ- exchange rate is judged to diverge by an exceptionally ing, extended fund, and oil facilities), Trust Fund loans, large margin from the rate actually applied in interna- and operations under the Structural Adjustment and tional transactions. Enhanced Structural Adjustment facilities. Sliort-termii debt is defined as debt that has an original External Debt maturity of one year or less. Available data permit no distinction between public and private nonguaranteed Debt Indicators presented in this section are ratios shoterdb. used to assess the external situation of developing coun- short-terni debt tries. They are compiled on a consistent basis as reported Total debt service is the debt service payment (prin- to the World Bank's Debtor Reporting System by mem- cipal repayments and interest payments) on total long- ber countries-The ratio offer variousnleasuresterm debt, use of IMF credit, and interest on short-term ber countriesTlhe ratios offer various measures of the det debt. 213 Table I Classification of economies by income and region, 1995 Sub-Saharan Africa Asia Europe and Central Asia Middle East and North Africa East and Eastern Income Southern East Asia and Europe and Rest of Middle North group Subgroup Africa West Africa Pacific South Asia Central Asia Europe East Africa Americas Burundi Benm Cambodia Afghanistan Albania Yemen, Rep. Egypt, Guyana Comoros I Burkina Faso China Bangladesh Armenia Arab Haiti Ertrea Central African Lao PDR Bhutan Bosnia and Rep. Honduras Ethiopia Republic Mongolia India Herzegovina Nicaragua Kenya Chad Myanmar Nepal Georgia Lesotho C6te dIlvoire Viet Nam Pakistan Tajikistan Madagascar Equatorial Sn Lanka Malawi Guinea Mozambique Gambia, The Low- Rwanda Ghana I Income Somalia Guinea I Sudan Guinea-Bissau TanzanLa Liberia Uganda Mali Zaire Mauritania Zambia Niger Zimbabwe Nigena So Tome and Pnncipe Sierra Leone Togo Angola Cameroon Fiji Maldives Azerbaijan Turkey Iran, Islamic Algeria Belize Botswana Cape Verde Indonesia Bulgaria Rep- Morocco Bolivia Djibouti Congo Kiribah Croatia Iraq Tunisia Colombia Namibia Senegal Korea, Dem. Czech Jordan Costa Rica Swaziland Rep. Repubhc Lebanon Cliba Marshall Kazakhstan Syrian Arab Dominica Islands Kyrgyz Rep. Dominican Micronesia Republic West Bank and Republic Fed. Sts. Latvia Gaza Ecuador N. Manana Is. Lithuania El Salvador Papua New Macedonia Grenada Lower Guinea FYRa Guatemala Phibppines Moldova Jamaica Solomon Poland Panama Islands Romania Paraguay Thailand Russian Peru Tonga Federation St. Vincent Vanuatu Slovak and the Westem Samoa Republic Grenadines Turkmenmstan Suruiame Ukramne Uzbekistan Middle- Yugoslavia, income Fed. Rep. | _____ Mauritius Gabon Amencan Belarus Gibraltar Bahrain Libya Anhguaand Mayotte Samoa Estonia Greece Oman Barbuda Reunion Guam Hungary Isle of Man Saudi Arabia Argentina Seychelles Korea, Rep. Slovenia Malta Aruba South Afnca Macao Portugal Barbados Malaysia Brazil New Caledonia Chile French Guiana Guadeloupe Martinique Upper Mexico Netherlands A-ntilles Puerto Rico St. Kitts and Nev is St. Lucia Trinidad and Tobago Uruguay |____________ l l | Venezuela Subtotal: 170 27 23 26 8 27 6 10 5 38 214 Table 1 (continued) Sub-Saharan Africa Asia Europe and Central Asia Middle East and North Africa East and Eastern Income Southern East Asia and Europe and Rest of Middle North group Subgroup Africa West Africa Pacific South Asia Central Asia Europe East Africa Americas Australia Austria Canada Japan Belgium United States New Zealand Denmark Finland France Germany Iceland OECD Ireland Countries ~~~~~~~~~~~~~~~~~~~~~~Italy Countries ~~~~~~~~~~~~~Luxembourg Netherlands High- Norway income Spain Sweden Switzerland Uniited Kingdom Brunei Andorra Israel Bahanias, The French Channel Kuwait Bermuda NonOECD Polynesia islands Qatar Cayman Countries Hong Kong Cyprus United Arab Islands Singa ore Faeroe Islands Emnirates Virgin OAE Greenland Islands (US) San Marino Total: 210 27 23 34 8 27 28 14 5 44 a. Former Yugoslav Republic of Macedorua. b. Other Asian economies-Taiwan, China. For operational and analytical purposes the World Bank's main Definitions of groups criterion for classifying economies is gross national product (GNP) These tables classify all World Bank member economies, and all other per capita. Every economy is classified as low-income, middle-income economies with populations of more than 30,000. (subdivided into lower-middle and upper-middle), or high-income. Other analytical groups, based on geographic regions, exports, and Income group: Economies are divided according to 1993 GNP per levels of extemal debt, are also used. capita, calculated using the WorldBank Atlas method. The groups are: Low-income and middle-income economies are sometimes referred to low-income, $695 or less; lower-middle-income, $696-$2,785; as developing economies. The use of the term is convenient; it is not upper-middle-income, $2,786-$8,625; and high-income, $8,626 or intended to imply that all economies in the group are experiencing more. similar development or that other economies have reached a preferred The estimates for the republics of the former Soviet Union are or final stage of development. Classification by income does not preliminary and their classification will be kept under review. necessarily reflect development status. 215 Table 2 Classification of economies by major export category and indebtedness, 1995 Low- and middle-income Low-income Middle-income High-income Severely Moderately Less Severely Moderately Less Not classified Group indebted indebted indebted indebted indebted indebted by indebtedness OECD nonOECD Armenia Bulgaria Hungary Belarus Canada Hong Kong China Poland Russian Estonia Finland Israel Georgia Federation Korea, Rep. Germany Singaaore Korea, Dem. Ireland OAF Rep. Italy Kyrgyz Japan Exporters of Reptublic Sweden manufactures Labtvia Switzerland Lithuania Macao Moldova Romania Ukraine Uzbekistan Afghanistan Albania Mongolia Argentina Chile Botswana Amencan Iceland Faeroe Islands Burundi Chad Bohvia Papua New Guatemala Samoa New Zealand Greenland Cote d'lvoire Malawi Cuba Guinea Namibia French Guiiana Equatorial Togo Peru Paraguay Guadeloupe Guinea Zimbabwe Solomon Reunion Ethiopia Islands Ghana St. Vincent Guinea I and the Guinea-Bissau I Grenadines Guyana Suriname I Honduras Swaziland Liberia Exporters Madagascar of nonfuel Mali primary Mauritania products Myanmar Nicaragua Niger Rwanda S3o Tome and Principe Somalia Sudan Tanzania Uganda Viet Nam Zaire Zambia Nigeria Angola Algeria Bahrain Brunei Congo Gabon Iran, Islamic Qatar Iraq Venezuela Rep. United Arab Exporters Libya Emirates offuels Oman (mainly oil) i Saudi Arabia Triniidad and Tobago ! I ! I I I Turkmenistan Yemen, Rep. Benin Bhutan Jamaica Antigua and Barbados Aruba United Bahamas, The Egypt, Arab Burkina Faso Jordan Barbuda |iBehze Cayman Kingdom Bermuda Rep. Cambodia Panama Dominican | Cape Verde Islands Cvprus Gambia, The Haiti Reptublc Djibouti Martinique French Nepal Lesotho Greece El Salvador Polynesia Western |Fliji Kuwait Samoa Grenada Exporters Kiribati of services Maldives Malta Seychelles St. Kitts and Nevis St. Lucia _ Vanuatu 216 Table 2 (ronfinued) Low- and middle-income Low-income Middle-income High-income Severely Moderately Less Severely Moderately Less Not classified Group indebted indebted indebted indebted indebted indebted by indebtedness OECD nonOECD Central Bangladesh Sri Lanka Brazil Colombia Azerbaijan Australia African Rep. Comoros Tajikistan Cameroon Costa Rica Dommica Austria Kenya India Ecuador Indonesia Kazakhstan Belgium Lao PDR Pakistan Morocco Mexico Malaysia Denmark Mozambique Synan Arab Philippines Mauntius France Diversified Sierra Leone Rep. Senegal Netherlands Luxembourg exporters" Uruguay Tunisia Antilles Netherlands Turkey Portugal Norway South Africa Spain Thailand United States Yugoslavia, l ____________ Fed. Rep. l Gibraltar Croatia Bosnia and Andorra Czech Herzegovina Channel Repubhc Entrea Islands Macedonia Guam San Marino FYRc Isle of Man Virgin New Marshall Islands (US) Not classified Caledonia Islands by export Slovak Mayotte cat egory, Republic Micronesia Slovenia Fed. Sts. Northem Mariana Islands Puerto Rico West Bank _ _ and Gaza Numtber of economies 210 [ 33 13 11 18 20 59 17 21 18 a. Other Asian economies-Taiwan, Chma. b. Economies m which no single export category accounts for more than 50 percent of total exports. c. Former Yugoslav Repubhc of Macedonia. Definitions of groups These tables classify all World Bank member economies, plus all other to GNP (80 percent) and present value of debt service to exports (220 economies with populations of more than 30,000. percent). Moderately indebted means either of the two key ratios exceeds 60 percent of, but does not reach, the critical levels. For -ajor e.port categor:Majorexportsarthosethataccountfor50 economies that do not report detailed debt statistics to the World Bank percent or more of total exports of goods and services from one Debtor Reporting System, present-value calculation is not possible. category. in the period 1988-92. The categories are: nonfuel primary Instead the following methodology is used to classify the non-DRS (SITC 0.1,2. 4, plus 68), fuels (SITC 3), manufactures (SITC 5 to 9, economies. Severely indebted means three of four key ratios (averaged less 68), and services (factor and nonfactor service receipts plus over 1991-93) are above critical levels: debt to GNP (50 percent); debt workers' remittances). If no single category accounts for 50 percent to exports (275 percent). debt service to exports (30 percent); and or more of total exports, the economy is classified as diversified. interest to exports (20 percent). Moderately indebted means three of Indebtedness: Standard World Bank definitions of severe and four key ratios exceed 60 percent of, but do not reach, the critical moderate indebtedness, averaged over three years (1991-93) are used levels. All other classified low- and middle-income economies are to classify economies in this table. Severely indebted means either of listed as less-indebted. the two key ratios is above critical levels: present value of debt service 217 Distributors of World Bank Publications ARGENTINA DENMARK JAPAN SINGAPORE, TAIWAN Carlos Hirch SRL SamfundsLatteratur EasternrBookService GowerAsa PacificPteLtd. 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The data series for the individual publications described below are also available in time series on 3.5-inch diskettes in the *STARS* retrieval sys- tem. .>STARS* diskette products require an lBM-compatible computer running DOS 2.1 or higher and 512k or more of available memory. TRENDS IN DEVELOPING ECONOMIES 1995 This aniual collection of profiles of economic conditions in developing economics is one of the World Bank's most eagerly awaited statistical publi- cations. The seventh edition analyzes the recent economic performance of approximately 120 economies. The reports describe each country's eco- nomic features, current socioeconomic issues, and prospects and summarize national development strategies. Statistical tables are designed to give fast access to key data on economic and social indicators and are accompanied by graphs. Most indicators include data for the 1980s and for 1992-94. The * STARS* diskettes include time-series data for 1980-94, with links between data tables and text. TRENDS IN DEVELOPING ECONOMIES 1995 EXTRACTS: VOL. 1. EASTERN EUROPE AND CENTRAL ASIA. VOL. 2. EMERGING CAPITAL MARKETS. VOL. 3. SUB-SAHARAN AFRICA Three regional extracts from Trends in Developing Economies present brief analytical descriptions and data on recent socioeconomic performance and rrends. Volume I covers 23 economies of Eastern Europe and the former Soviet Union. Volume 2 concentrates on 22 developing countries where stock markets have grown rapidly since the early 1980s and foreign investment has increased since 1989. Volume 3 presents individual pro- files of 41 Sub-Saharan African countries. SOCIAL INDICATORS OF DEVELOPMENT 1995 Provides the latest social indicators for more than 190 economies, including the most recent available estimates of fertility, mortality, illiteracy, access to health care, and shares of GDP for selected social expenditures. International comparisons are made easier by a summary table that takes a cross-country look at a selected array of indicators. WORLD DEBT TABLES 1994-95 Provides complete and up-to-date data on the debt and international capital flows of developing countries. This two-volume set gives debt data for 137 countries. Volume I analyzes and summarizes external finance for developing countries. Data presented in both volumes are compiled from the World Bank's exclusive Debtor Reporting System. The tables give statistics by country on public and publicly guaranteed long-term debt, private nonguaranteed long-term debt, short-term debt, and International Monetary Fund credits. Indicators report on debt outstanding, undisbursed debt, commitments, disbursements, repayments of principal, net flows, interest payments, and net transfers. Also provided are data on the currency composition of long-term debt, debt restructuring, and debt service projections. Aggregate data are presented for all countries and for selected groups, including principal borrowers and highly indebted countries. The Extract volume contains summaries in English, French, and Spanish. WORLD DEVELOPMENT REPORT 1995 This series, now in its eighteenth year, has been described as "the most influential document in setting the agenda for the development debate." World Development Report 1995 focuses on workers in an integrating world. The Report evaluates development strategies for increasing incomes, opportunities for and threats to integration, the role of domestic labor market policies, and the experience of workers in countries going through major changes from central planning or protectionism. It includes the World Development Indicators-statistical tables that provide instant access to the most comprehensive and current data available on social and economic development in more than 200 economies, including the countries of the former Soviet Union and the Eastern and Central European economies. Topics range from agricultural production to international trade. WORLD TABLES 1995 The most detailed print collection of economic data published by the World Bank. This edition provides economic, demographic, and social data for about 164 economies plus basic indicators for an additional 45 economies. The time series spans 1973 to 1993. Data are organized by topic and by country. The topical pages report GNP, GDP, domestic savings and investment, imports and exports, and other economic indicators for individual countries, geographic regions, and income groups. The country pages consist of four-page tables for most of the World Bank's members, presenting data on GNP per capita, population, origin and use of resources, domestic prices, manufacturing activity, monetary holdings, central government finances, foreign trade, balance of payments, and external debt. 9 780821 332849 COVER DESIGN BY BRIAN NOYES / THE MAGAZINE GROUP ISBN 0-82 1 3-3284-8