Outlook for 2011-12

Political instability is set to continue in Guinea-Bissau as the president, Malam Bacai Sanhá, struggles to manage the fragile balance of power between the country's political and military leaderships. This is jeopardising the resumption of donor aid, upon which growth depends. Nonetheless, modest donor inflows, further recovery in cashew output, the first trickle of foreign direct investment and a revival in domestic demand will drive real GDP growth of 4.5% in 2011 and 4.8% in 2012. Inflation is forecast to rise to an average of 3.4% in 2011-12, on the back of resurgent international food and energy prices. The current-account deficit will remain broadly unchanged in 2011, at 10.5% of GDP, before narrowing to 8.5% of GDP in 2012.

The political scene

In late January the EU decided to begin Article 96 consultations with the Bissau-Guinean government, in the wake of its concerns over alleged infringements of human rights and the rule of law. The prime minister, Carlos Gomes Júnior, has reiterated his country's determination to fight drug-trafficking. The government has followed up with a number of high-profile actions, including the establishment of an anti-narcotics agency. There has been a further strengthening of ties with Angola. In addition to support for Guinea-Bissau's security sector reform, Angolan assistance has been instrumental in helping the country's television station to resume its transmissions after a five-month closure.

Economic policy

In a joint staff report, the IMF and World Bank have highlighted the progress that Guinea-Bissau has made with respect to a number of key education and health indicators. Primary school enrolment rates have risen from 42% in 2000 to 65% in 2010. The African Development Bank (AfDB) confirmed in late January that Guinea-Bissau had met the conditions for debt relief under the enhanced heavily indebted poor countries (HIPC) initiative. In response, the AfDB has approved a US$60.4m debt-relief programme, as well as a US$23.7m additional debt cancellation granted on an exceptional basis.

The domestic economy

The UN World Food Programme (WFP) has agreed to extend its post-conflict relief and recovery operation until the end of 2011, at a cost of US$8m. Businessmen from China and Syria have expressed interest in investing in Guinea-Bissau's economy.

Foreign trade and payments

Foreign-exchange reserves remained close to a record high throughout most of 2010.