Political instability is set to continue over the forecast period, owing to the country's weak and divided civilian leadership, the rising influence of the military and the ongoing expansion of drug-trafficking activity through Guinea-Bissau's territory. The civilian president, Malam Bacai Sanhá, was elected in the wake of the assassination in March 2009 of the former president, João Bernardo Vieira, and the army chief, General Tagme Na Wai, and is struggling to maintain the fragile balance of power between the country's political and military leaderships. The president is widely viewed as a consensus figure and expectations had been high that his election would mark a definitive break from the era of Mr Vieira, which was characterised by tensions between the president, his government and the army, as well as political instability and periodic coup attempts. However, Mr Sanhá's poor health and fractured relations with the prime minister, Carlos Gomes Júnior, are weakening his effectiveness.

In contrast, the army chief, General António Indjai, and the navy chief, Rear-Admiral José Américo Bubo Na Tchuto, are increasingly calling the political shots, both having been confirmed in their roles by Mr Sanhá following the military mutiny of April 1st 2010. Their double appointment, against the express wishes of donors and regional partners, has called into question the entire basis of the political settlement that followed Mr Sanhá's election. Although the military has insisted that it is subordinate to the country's political leaders, there is growing evidence that military leaders are becoming the true centres of power, reducing Mr Sanhá and Mr Gomes Júnior to figureheads. This is particularly damaging to the country's interests, as the two military leaders are strongly suspected of having links to drug-trafficking networks and as the international community has been discussing targeted sanctions against them.

The current situation has again prevented donors from re-engaging fully with the country, denying the government the inflows of funding that it desperately needs to boost public spending and rehabilitate the country's shattered infrastructure. In late January the EU opened a consultation procedure with the government of Guinea-Bissau in order to investigate more fully the country's political situation. If the discussions do not lead to an agreement over further reforms, Guinea-Bissau may face a protracted suspension of the development co-operation provided by the EU, one of the country's main partners.

One of the conditions set by the EU for the full resumption of co-operation is likely to be a strong commitment on the government's part to the long-delayed security sector reform (SSR). This reform is also being supported by the regional grouping, the Economic Community of West African States (ECOWAS), and the Comunidade dos Países de Língua Portuguesa, under the aegis of Nigeria and Angola respectively. A roadmap for SSR has been drawn up and is now awaiting the final endorsement of ECOWAS governments. SSR is essential for future political stability and the creation of modern and affordable armed forces, which are currently weighed down by outdated equipment and a bloated officer corps. However, this process is opposed by sections of the army leadership, who fear a reduction in their political influence and living standards, greatly increasing the policy's political risks for the government.

In the meantime, the military's growing interference is in danger of shattering the fragile political consensus achieved both within the ruling Partido Africano da Independência da Guiné e Cabo Verde (PAIGC) and between the main political parties. Although there have been indications in recent months of an increasing dialogue between Mr Sanhá and Mr Gomes Júnior on key policy matters, there is no guarantee that this improved relationship will be sustained for very long. Meanwhile, opposition leaders-especially the former president and current leader of the Partido da Renovação Social (PRS), Kumba Yala, who has set his sights on the presidency in 2014-will be looking for the chance to exploit any divisions. As a result, the opportunity provided for a new era in Guinea-Bissau's politics by the death of Mr Vieira and the election of Mr Sanhá is in danger of being lost, returning the country to its previous pattern of unstable governments and periodic coups.