Macroeconomic performance and outlook
GDP grew by an estimated 5% in 2019, driven mainly by private consumption and exports. Economic performance remains highly correlated with the volumes and prices of cashew nuts. Considered the “green oil” of Guinea-Bissau, the nuts account for almost 70% of employment and more than 90% of exports.
Inflation is estimated to remain below 3%, despite increase in oil prices. Underperforming cashew exports in 2018 translated into lower revenue as agriculture is the main source of domestic revenues. The effect of the lower cashew price is expected to constrain the 2019 and 2020 budget. With lower revenues and higher spending, the budget deficit rose to 5.1% of GDP in 2018, but then declined to an estimated 2.8% in 2019. To finance the deficit, public debt securities totaling 10 billion CFA francs were issued in September 2019, leaving public debt in 2019 at an estimated 27%.
The current account deficit worsened from 1.6% of GDP in 2018 to 3.4% in 2019, reflecting the lower cashew nut export prices. The country depends heavily on imports, dominated by machinery and construction materials (19%), fuel and refined products (18%), services (16%), and food and agricultural products (12%). India remains the main trading partner, receiving more than 80% of unprocessed cashew exports.
About 67% of the population lives in poverty and 33% in extreme poverty. Inequality is high. Unemployment is 11.6%, and informal workers are a structural problem.
Tailwinds and headwinds
GDP is projected to grow at 5% in 2020, driven by greater cashew production volume and stable prices. Institutional reforms are laying the foundation for more private participation. Efforts to attract private investments include creating an Investment and Export
Promotion Agency and signing the Lusophone Coun- try-specific Compact. The Central Bank of the West African States has launched a mechanism to finance domestic small and medium enterprises. Domestic initiatives will increase electricity and water availability, improve cashew marketing, and address weaknesses in the banking sector. That should boost private sector confidence and contribute to growth and macro- economic stability
To improve employment opportunities and the macroeconomic climate, new investments include oper- ationalizing a new cement factory in Bissau, completing the Buba-Catió road, and creating a line transmitting energy from the Kaleta and Sambangalou subregional hydropower plants as part of the Gambia River Basin Development Organization energy connectivity project. Regional integration commitments under the Africa Continental Free Trade Agreement should lift trade and growth limitations imposed by the small economy.
Agriculture needs large-scale investment and a business environment that promises returns to value chain investors. But the lack of an updated budget undermines development planning and implementation. Adverse terms of trade could undermine growth and weaken domestic resource mobilization. Repeated cashew price shocks could discourage many small- scale producers and reduce national output and exports. Lower cashew prices could worsen key debt-sustainability indicators, such as the debt-to-export and the debt-to-revenue ratios. Higher-than-ex- pected oil prices could reduce domestic production and undercut revenues.
The vulnerability of agriculture and fishing to climate change challenges the livelihoods of more than 70% of the population. Irregular precipitation and frequent flooding in coastal and island regions threaten the economy and the population, especially the large proportion of poor and vulnerable households with limited alternative livelihoods.
Health sector preparedness
Guinea-Bissau is one of the 10 least prepared countries to deal with the pandemic. The Global Health Security Index ranked it 186 among 195 countries globally, and 51 among 54 countries in Africa, with the second-worst health system score. The country performed poorly on all prevention-related subcategories except vaccination rates. It lacks intensive care unit beds, equipment, and human resource capacity. Since no center for isolation is operat- ing, people testing positive live with their families, posing a high risk of contagion.
On 18 March 2020, the government closed all border entry points, except for medical evacuations, supplies of medicines, and imports of basic food. Restrictions on movement of people were also imposed across the coun- try, except from 7am to 11am. Despite the government’s quick response to monitor incoming citizens to avoid the spread of the pandemic, the lack of funds and equipment put in question the ability to deal with a disease outbreak. International partners and bilateral donors were mobilized to support the country, but the political impasse due to a judicial dispute over the results of presidential elections delayed aid implementation.
No specific macroeconomic measures were adopted, as the country remains mired in political deadlock with no clear policy direction. Improvement in the political environ- ment could pave the way for providing staple food, water, and hygienic products to families, creating storage spaces, and providing credit lines to producers to invest in machin- ery to process the harvest and and create jobs in the sec- ondary sector.
Guinea-Bissau's debt ratio is estimated at 56.1% in 2018, up 2.2 percentage points compared to 2017. This increase is explained by slower growth in 2018 compared to 2017 and by the deterioration of the budgetary balance and the balance of the current account. Indeed, Guinea-Bissau's budget deficit fell from 1.4% of GDP in 2017 to 3.8% of GDP in 2018, a deterioration of 2.4 percentage points. This deterioration can be explained by the weakness of the resources mobilized compared to the increasing costs, in particular for the purposes of financing the National Development Plan (Terra Ranka, 2015-2020).[Source: UMOA-Titres].
As part of its market development activities, the UMOA Titres Agency has carried out a project to set up issuers' yield curves of the Public Securities Market of the UEMOA zone (MTP) with objective:
- to improve transparency on the MTP
- to contribute to better price formation during the auctions
- to make investors aware of the relationship between primary and secondary markets
- to provide local / international investors with a reference of price for securities issued by the States
The conditions for yield curves constructions have not yet all been observed on the (MTP). It was thus retained:
- in the short term, to develop a first version of yield curves taking into account the specificities of the MTP, while being sufficient evolutionary to support its development;
- in the medium / long term, define the necessary ways and means to Continuous improvement yield curves models following the evolution of the MTP.
Guinee Bissau government securities yield curve extends to 5 years.
Yield curve calculation models
The yield curve is constructed on the basis of primary market returns. The model used is the Nelson-Siegel Svensson .
Yield curve managed by
Agence UMOA-Titres is responsible for the yield curve.
Agence UMOA-Titres website
Challenges in building an efficient yield curve
Fragmentation of the market
Narrow investor base: comprising homogeneous investors such as banks.
Low liquid secondary market
Guide to Buying Bonds
Procedures for market participation
The primary subscription of Treasury bonds and bonds is reserved for credit institutions, management and intermediation companies (SGI) as well as regional financial institutions with a settlement account in the books of the Central Bank.
Other investors, natural or legal persons, irrespective of the State in which they are established, may also subscribe to Treasury bonds and bonds on the primary and secondary market through credit institutions and SGI. located in the territory of the Union.
Emissions on the primary market of the MTP (Marché des Titres Publics) are made by auction.Each issuance should be advertised at least 7 days before the auction by describing the issuance characteristics. Bidders submit to the Central Bank, sealed in a ballot box reserved for this purpose, a submission form specifying the amounts and the interest rates or the price offered. Submissions may also be made electronically in the conditions defined by the Central Bank.
Later than one hour after the deadline for bids submission, the National Directions of the BCEAO transmit electronically, by fax or any other means of rapid communication accepted by the Central Bank, the main submissions to the principal agency of the BCEAO, which is organizing the auction.
Treasury bills are eligible for refinancing by the Central Bank. Investors and the Central Bank may buy or sell Treasury bonds on the secondary market, awarded by private treaty. In this context, they are required to post the purchase price and sale, which they are willing to transact.
Bond issues can be done by syndication managed by CREPMF.[http://www.crepmf.org/Wwwcrepmf/Reglementation/pdf/Instructions/INSTRUCTION_N36_2009.pdf]
Treasury bonds can be traded on the secondary market. As such, they can be exchanged at the Regional Stock Exchange (BRVM) or outside the BRVM.
On the primary market by auction, the settlement date is T+1 of the issue date.On the secondary market, the payment of purchases of Treasury bonds and bonds by the primary subscribers is made by debiting their settlement account with the Central Bank on the value date of the issue of these securities. settlement date is the first business day following the conclusion of the transaction for domestic transactions and the third business day following the conclusion of the transaction for transactions between two (2) Member States. The Contracting Parties are free to agree on a term greater than these minima for the settlement of transactions, IF the instructions given by both parties are identical, the transaction is directly offset on the agreed value date. In the event of a discrepancy, the Central Bank suspends the transaction and notifies both parties of this decision for correction.
Treasury bills and Treasury bonds incomes are tax-free throughout the territory of the Member States of the WAEMU.But for non-members, the tax rates are different from one country to another. In Guinea-Bissau, the tax rate one securities income is equal to maximum 6%.
|Rating Agency||Current rating||Outlook|
|Moody’s||No rating||No outlook|
|Fitch||No rating||No outlook|
|Standard and Poor’s||No rating||No outlook|
The securities market has a system of Specialists in Treasuries. The credit institutions and the SGIs may be approved as SVT under the conditions specified by an Instruction of the Central Bank. As such, they must respect certain commitments that confer special advantages. These commitments and benefits are specified by an instruction from the Central Bank.
List of Primary Dealers
BANQUE REGIONALE DE MARCHES
IMMEUBLE LA ROTONDE RUE DR THEZE X ASSANE NDOYE
CORIS BANK INTERNATIONAL
1242 AVENUE DU DR KWAME N’KRUMAH
UNION TOGOLAISE DE BANQUE
BOULEVARD DU 13 JANVIER NYEKONAKPOE
Openness to international investors
No restrictions prevent foreign investors from trading in the public securities market. They may subscribe to Treasury bonds and bonds on the primary and secondary markets through credit institutions and SGI located within the Union.
There are no significant limits on foreign investment nor are there generally differences in treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment.
Restriction on FX and profit repatriation
WAEMU has unified foreign exchange regulations. Under these regulations, there are no restrictions for transfers within the community, and designated commercial banks are able to approve routine foreign exchange transactions inside the community. The transfer abroad of the proceeds of liquidation of foreign direct investments no longer requires prior governments approval.