By Judith Ugwumadu | 4 November 2014

Guinea-Bissau is set to receive a $5.24m emergency loan from the International Monetary Fund under a programme intended to tackle the economic crisis in the country.  

The loan agreement comes from the IMF’s Rapid Credit Facility, which provides quick financial help for poor countries recovering from economic shocks, natural disasters or humanitarian crises. The full amount is to be immediately disbursed. It is equivalent to 25% of the west African country’s quota in the IMF.

Assistance from development partners was ‘crucial’ in the period ahead, as the newly elected African Party for the Independence of Guinea and Cape Verde (PAIGC) government inherited very difficult conditions, the IMF said. Two years of economic disruption had eroded government revenues and led to a compression in social spending.

The funds will help the country quickly address budget and balance-of-payments gaps, reduce poverty by resuming key government services and strengthen the capacity of the government.

International financial help should also balance further efforts to strengthen public financial management.

‘To maintain macroeconomic stability, the government must continue with a prudent fiscal policy that limits spending to available resources and prioritises it carefully. Clearing the still outstanding domestic arrears of 2013 and 2014 and all external arrears by year-end will be an important step to support the recovery,’ said the IMF.

‘Going forward, the authorities should focus on preventing re-emergence of arrears by avoiding extra-budgetary expenditures and improving cash management. In this regard, the reinstatement of the treasury committee and the preparation of cash management plans are steps in the right direction.’

Approval of the funds also means that the PAIGC government can engage in discussions with development partners regarding further assistance, the IMF added.