GUINEA'S FY07 BUDGET PROPOSAL AIMED AT STABILIZING

UNCLAS CONAKRY 000829 SIPDIS SIPDIS TREASURY FOR OFFICE OF AFRICAN NATIONS E.O. 12958: N/A TAGS: PGOV EFIN ECIN GV SUBJECT: GUINEA'S FY07 BUDGET PROPOSAL AIMED AT STABILIZING ECONOMY ¶1. (SBU) SUMMARY. In Guinea's FY07 proposed budget, submitted to the National Assembly on July 6, the Kouyate administration identified increased spending for public infrastructure and rural development as priorties for stabilizing the economy. It also called for an increase in election spending and tightened budgetary controls. The administration projects a budget deficit of $269 million, which is roughly 5% of Guinea's annual GDP. Changes in the key economic indicators used in developing the budget, including higher inflation and a stronger currency, mean that the budget figures will likely be recalculated. However, the fact that Guinea is undergoing a formal budget process is positive and could signal a return to normalization. END SUMMARY. ¶2. (SBU) On July 6, Prime Minister Kouyate submitted his administration's FY07 budget during a Special Session of the National Assembly. In the budget narrative, the government identifies fighting fraud and tax evasion, reinforcing border controls, and heightened responsibility for recovery of receipts by the ministries as tools to help balance the budget. ¶3. (SBU) The budget projects total receipts of approximately $609,000,000 and total expenditures of about $878,000,000, leaving a projected deficit of $269,000,000 (representing approximately 5% of GDP). The government proposes covering the deficit by authorizing the Ministry of Finance to accept gifts, conducting external borrowing, negotiating a rescheduling of external debt, deferring payments of domestic arrears, reducing external arrears, changing treasury charges, non-bank loans, and finally, undefined "other means." The last category includes a possible suspension of service of the external debt. The budget calculations assume a GDP growth rate of 1.5%, inflation of 24%, a GnF exchange rate of 4,350 to 1, and annual external debt service of $195,000,000. (Note - These figures are outdated. The GoG currently reports inflation at 36% while the exchange rate is 3,500 to 1). ¶4. (SBU) The budget also calls for almost $17 million in funding for elections, an increase of more than 600% over FY06. This figure does not include the approximately $5.5 million in election aid from the European Union. ¶5. (SBU) Finally, the budget plan reduces foreign travel by government officials and institutes strict budget controls as additional ways to balance the budget. (Note - the program budgeting process, another tool to help balance the budget, is scheduled to be implemented in FY08). ¶6. (SBU) COMMENT. The fact that a formal budget has finally been submitted is a positive step toward normalization and a possible return to a funded IMF program. The approval of the budget by the National Assembly is close to a forgone conclusion. However, since key economic indicators have changed significantly, it may need to be reevaluated. The stronger exchange rate means that the external debt service will be less of a burden on the budget than assumed. However, this also means that exports will be more expensive and imports less so. The higher inflation rate also cuts both ways, by calling into question the stated amounts for spending, while increasing tax revenue on inflated turnover. Meanwhile, the FY08 budget is currently scheduled to be submitted October 5. END COMMENT. DKAEUPER KAEUPER