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Lusa - Business News - Guinea-Bissau: Default looms as Covid bites




Bissau, Oct.26,2020 (Lusa) - Economic analyst Aliu Soares Cassamá said on Monday that Guinea-Bissau could default, given the high level of external debt, which is around 80% of Gross Domestic Product (GDP).

According to Soares Cassamá, Guinea-Bissau's situation "tends to deteriorate" in light of the convergence criteria of the West African Economic and Monetary Union (UEMOA from its name in French), which states that no country can have public debt exceeding 70% of its GDP.

A senior executive at a commercial bank in Bissau, the economist believes that "either the country quickly begins to renegotiate its debt or have it forgiven, or it runs the risk of default," he noted.

Cassamá commented to Lusa on the situation in Zambia, declared last week by the financial ratings agency Standard & Poor's as the first African country to go into financial default due to the Covid-19 pandemic.

The economist explained that a country defaults when its public debt soars exponentially while public finances deteriorate sharply.

In the case of Guinea-Bissau, Cassamá said that the picture exists, to which he added, an "increasingly reduced" flexibility for the country to obtain external financing, with the visible drop in internally collected revenues.

Cassamá pointed out that, at the moment, Guinea-Bissau's domestic revenues "have fallen by 50%" and that of that 76% is earmarked for paying salaries to civil servants and the remaining 24% "is not enough to pay debts or make investments," he said.

The way to avoid collapse, he noted, would be to produce more, develop the industrial sector, promote reforms in education and the fiscal framework, avoid "irrational borrowing" and get out of the dependence on an economy based mainly on cashew nuts.

"Guinea-Bissau is at serious risk of default due to high debt servicing and heavy dependence on cashew nut revenues," the analyst noted.

In summary, the current picture of the dependence of the entire Guinean economy on cashew nuts is characterised by low growth and marked macroeconomic instability.

The analyst also predicts that the Guinean economy "will suffer even more," given its fragility and exposure to the so-called external shock, especially when, he said, the real impact caused by Covid-19 begins to appear.

This is because the country's main creditors "will be waiting".

Cassama explained that the creditors to which he referred are the World Bank, the International Monetary Fund, the West African Development Bank and the West African Economic and Monetary Union.

The ministry of finance is trying to establish a new programme with the International Monetary Fund, with the support of the World Bank, to "equate the sustainability" of the country's debt.

Guinea-Bissau's cabinet on Thursday decided to postpone discussion of the 2021 state budget because of "ongoing negotiations with the Bretton Woods institutions," according to a press release.

In a report, released last week, the International Monetary Fund forecasts that the Guinean economy will grow by 3% in 2021.

MB/ADB // ADB.

Lusa




Agency : LUSA

Date : 2020-10-27 09:57:00







 

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