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outdated.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