Guinea-Bissau - Joint World Bank-IMF Debt Sustainability Analysis

Overview & Synopsis

Guinea-Bissau remains at high risk of external and overall debt distress, unchanged from the previous Debt Sustainability Analysis (DSA) (December 2024). For external debt, the PV of debt to exports ratio breaches the threshold from 2025 to 2027 and the debt service to exports ratio also breaches from 2030 to 2032. However, the stock of external debt has been steadily reduced through the prudent borrowing policy, and the PV of external debt for 2024 was reduced from the previous DSA with the finalized schedule of debt reprofiling of the West African Bank for Development (BOAD). Public debt stood at 82.2 percent of gross domestic product (GDP) in 2024, increased by 2.8 percent of GDP from 2023 or 4.6 percent of GDP from the previous DSA, despite reduction of the domestic primary deficit by 1.1 percent of GDP. The PV of public debt to GDP ratio breaches the benchmark for a prolonged period. However, public debt is assessed as sustainable based on the authorities’ commitments to fiscal consolidation, which will reduce public debt to the WAEMU criteria of 70 percent of GDP in 2030 and below 60 percent of GDP in the long run. The authorities have been committed to a prudent borrowing policy and fiscal consolidation, which are the key drivers to reduce external and public debt. The prudent borrowing policy includes strict adherence to the zero-ceiling on non-concessional borrowing as well as tight limits to new concessional borrowing under the borrowing plan. The authorities have made significant progress in strengthening expenditure controls, which reduced domestic primary expenditure by 2.3 percent of GDP in 2024. Fiscal consolidation to put public debt on a downward trajectory is concentrated in 2025 when a domestic primary deficit will be reduced by 2.2 percent of GDP. The authorities have been implementing a long list of revenue and expenditure measures that buttress the deficit target. However, the risks to fiscal consolidation are high, especially on the expenditure side, ahead of the election in November 23, 2025. There was 1.8 percent of GDP of spending overrun in early 2025, although its impact will be fully compensated by additional measures introduced under the International Monetary Fund (IMF) supported program. The program extension for six months, which will pin down the authorities’ policy commitments for the whole of 2025, is an attempt to mitigate these risks.