Guinea-Bissau has reached a preliminary agreement with the International Monetary Fund to secure financing and a support programme that could lead to some $700 million in debt relief, officials said.
Despite a string of assassinations that claimed leading politicians, including the then President, the former Portuguese colony achieved 3 percent economic growth in 2009 and was making progress in economic reforms, the IMF said.
The West African nation, whose main export is cashew nuts, has been plagued by years of political violence and meddling by the military, leaving it one of the world’s poorest nations.
The IMF said that it had reached a preliminary agreement with the government in Bissau for an Extended Credit Facility (ECF) agreement, which would focus on macroeconomic and structural reforms between 2010 and 2012.
A successful implementation of the IMF programme would help Guinea Bissau move towards reaching completion point for Highly Indebted Poor Countries (HIPC) debt relief.
“We are negotiating with IMF for a debt relief programme in the order of $700 million,” Finance Minister Jose Mario Vaz said at the end of an IMF mission to Guinea Bissau.
Vaz said the government had managed to clear 9 billion CFA francs ($19.30 million) of unpaid salaries, as well an unspecified amount of debt with commercial banks in the country.
“The situation was so difficult that we were getting desperate,” he said.
Tax revenues are now estimated at 388 billion CFA per year, double the levels they were at this time last year, he said.
Guinea Bissau faced the impact of the global economic crisis, which slashed cashew prices and remittances from abroad, at a time of intense political turmoil. It held elections last year after its president, army chief and several other politicians were killed in political violence.
“Despite the difficult external environment and a challenging political context, Guinea-Bissau made some progress in stabilising its economy in 2009,” Paulo Drummond, IMF mission chief.
Notable structural reforms were a government’s approval of public finances management plan and a new investor’s code, which should provide the base for solid economic growth, he added.
As well as cashew nuts, Guinea Bissau is seeking to maximise revenues from fishing off its shores. Angola is also currently developing a $500 million bauxite project while Guinea Bissau has shared oil interests with neighbouring Senegal.