Guinea-Bissau

Guinea-Bissau used the existing colonial currency for a few years after independence in 1974, then issued its own peso. Development planning and widespread controls led to recurring fiscal deficits and depreciation, with a large forex parallel market premium. Initial attempts at stabilisation and structural reform were unsuccessful, but further efforts from 1987 were more effective. In 1997 Guinea-Bissau joined the West African CFA franc zone.

YearsTargets and attainmentClassification
1974-75liberation movement declares independence September 1973, new Portuguese government grants independence September 1974; initially country continues to use colonial Guinea escudo, issued at par with Portuguese escudo by local branch of Portuguese commercial bank which is only bank in country; 1975 that branch taken over by new local bank Banco Nacional da Guiné-Bissau (BNGB), which is in principle both central and commercial bank; two pre-existing savings and loan and postal savings institutions reorganised and reduced in importance; sharp rise in credit to government and state enterprises; BNGB lacks trained personnel, statistical database and approved statutes, so unable to act as full central bank; central planning, at this stage not fully effective; statistical data very pooruse of another sovereign’s currency UASC
1976-86BNGB issues new Guinean peso notes March 1976 at par to replace old escudo (old coins still legal tender); early 1977 devaluation of Portuguese escudo offset by Guinean peso revaluation, but peso follows escudo in subsequent depreciations; May 1978 further devaluation of escudo followed by crawl announced, Guinea pegs peso to SDR (with USD as intervention currency); no autonomous forex market but margins of 2.25%; government planning becomes more organised from 1978 with tightening of price, trade and exchange controls; large fiscal deficits affecting monetary growth, although most capital spending financed from foreign sources; rising economic problems – overvaluation, repressed inflation, parallel forex market, supply shortages – lead 1983 to stabilisation programme with 50% devaluation and weekly further depreciation, plus some structural reform; further such programmes follow, but implementation poor (fiscal deficits still large and bank-financed, monetary growth high, exchange rate overvalued, structural reforms incomplete) and results disappointing; statistical data inadequateunstructured discretion UD
1987-961987-89 revised stabilisation programme including large devaluation aimed to eliminate parallel market premium, followed by further frequent (and later larger) adjustments; implementation and results patchy; stricter programmes, implementation and results again patchy; 1990 move to two-tier banking system, with BNGB split into central bank and temporary commercial bank, latter taking over medium- and long-term portfolio of BNBG before being closed in June 1991, and two private commercial banks operating from 1990 and 1992; central bank instruments are reserve requirements, rediscount facilities and credit ceilings; 1991 peso pegged flexibly (continuing frequent depreciations) to escudo under monetary arrangement with Portugal providing line of credit; 1994 foreign exchange market unified; by mid-1990s with further programme supported by IMF, implementation and results somewhat but erratically improved: fiscal deficit reduced, interest rates varied more often and widely and real interest rates sometimes positive, monetary growth somewhat lower, some structural reforms, but inflation volatile; agreement May 1996 for Guinea-Bissau to enter WAEMU (with date agreed later as May 1997): move motivated for Guinea-Bissau by hope of greater monetary and exchange rate stability, improved climate for FDI and deeper financial intermediation, and supported by IMF for benefits in terms of regional integration, macro and monetary discipline and financial stability; entry involves recapitalisation of central bank before absorption by BCEAO, currency conversion, replacement of existing monetary instruments by those used by BCEAO; statistical database much improvedloosely structured discretion LSD
1997-2017May 1997 Guinea-Bissau becomes member of west African CFA franc zone, see West African (Economic and) Monetary Union; there is no national monetary policymember of currency union CU

Selected IMF references: Guinea-Bissau – Economic Situation, 1977, pp22-5, 29-30; RED 1979 pp24-7, 35-7; RED 1983 pp14-16, 20-22; SR 1983 pp2-3; RED 1984 pp19-20 29; SR 1984 pp2-3, 8-9, 11-12; SR 1987 pp6-8; SR 1988 pp4-7, 15; SR 1990 pp2-10, 13-14; SR 1991 p3; SR 1992 pp2-4; RED 1994 pp29, 42-44; RED 1995 pp8-10, 12-13; SR 1995 pp3-4; SR 1997 pp7-10, 13-15, 50-5; RED 1998 pp16-17.

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