FOR OFFICIAL USE ONLY Report No: PD000015 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED GRANT IN THE AMOUNT OF SDR 7.7 MILLION (US$10.0 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA-BISSAU FOR A GUINEA-BISSAU REFORM ADVANCEMENT DEVELOPMENT POLICY FINANCING April 4, 2025 Economic Policy Global Practice Western And Central Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) The Republic of Guinea-Bissau GOVERNMENT FISCAL YEAR January 1 –December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of February 28, 2025) Currency Unit – CFAF (Franc of the African Financial Community) US$1.00= CFAF 626 US$1.00=SDR 0.76394191 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ICT Information Communications Technology APGB Guinea-Bissau Ports Administration (Administração dos IDA International Development Association Portos da Guiné-Bissau) ARCP Procurement Regulatory Authority IDS International Debt Statistics BAO Bank of West Africa (Banco da Africa Occidental) IFC International Finance Corporation BCEAO Central Bank of West African States (Banque Centrale des IGV General Sales Tax (Imposto Geral sobre Vendas e Serviços États de l'Afrique de l'Ouest) CAD Current Account Deficit IMF International Monetary Fund CCDR Country Climate and Development Report MTDS Medium-Term Debt Strategy CEM Country Economic Memorandum NDP National Development Plan CFAF Franc of the African Financial Community (Communauté NPL Non-performing Loan Financière Africaine Franc) COTADO Technical Committee of Arbitration of Budgetary OMVG Gambia River Basin Development Organization Expenditure (Organisation pour la mise en Valeur du Fleuve Gambi) CPF Country Partnership Framework PA Prior Action CSO Civil Society Organization PDO Program Development Objective DGCP Directorate General of Public Tender (Direção-Geral do PER Public Expenditure Review Controlo e do Património) DPF Development Policy Financing PFM Public Financial Management DMFAS The Debt Management and Financial Analysis System PPG Public and Publicly Guaranteed DRM Domestic Revenue Mobilization PSSP Public Sector Strengthening Project DSA Debt Sustainability Analysis RRA Risk and Resilience Assessment EAGB Electricity and Water of Guinea-Bissau (Electricidade e SDFP Sustainable Development Finance Policy Águas da Guiné-Bissau) ECF Extended Credit Facility SDR Special Drawing Rights FCS Fragile and Conflict-Affected Situation SCD Systematic Country Diagnostic FDI Foreign Direct Investment SOE State-owned enterprise GDP Gross Domestic Product TA Technical Assistance GHG Greenhouse Gas TSA Treasury Single Account GoGB Government of Guinea-Bissau VAT Value Added Tax GRS Grievance Redress Service WB World Bank HFO Heavy Fuel Oil WBG World Bank Group IBRD International Bank for Reconstruction and Development WAEMU Western African Economic and Monetary Union The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Regional Vice President: Ousmane Diagana Regional Director: Abebe Adugna Dadi Country Director: Keiko Miwa Practice Manager: Hans Anand Beck Task Team Leaders: Demet Kaya, Patrick John McCartney, Michael Christopher Jelenic The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) REPUBLIC OF GUINEA-BISSAU Guinea-Bissau Reform Advancement Development Policy Financing TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM ...................................................................... i I. COUNTRY CONTEXT AND OPERATION SUMMARY......................................................................... 1 II. MACROECONOMIC POLICY FRAMEWORK .................................................................................... 2 A. Recent Economic Developments .....................................................................................................3 B. Macroeconomic Outlook and Debt Sustainability ...........................................................................7 C. IMF Relations .................................................................................................................................11 III. PROPOSED OPERATION ............................................................................................................. 12 A. Link to Government Program, CPF, other WBG operations, and Corporate Priorities .................12 B. Prior Actions, Triggers, Expected Results and Analytical Underpinnings ......................................13 C. Consultations and Collaboration with Development Partners ......................................................21 IV. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 21 A. Poverty and Social Impacts ............................................................................................................21 B. Environmental, Forests, and other Natural Resources Aspects ....................................................22 C. PFM, Disbursement, and Auditing aspects ....................................................................................22 D. Monitoring, Evaluation, and Accountability ..................................................................................24 V. SUMMARY OF RISKS AND MITIGATION ...................................................................................... 25 ANNEX 1. Policy and Result Framework .......................................................................................... 27 ANNEX 2. Paris Alignment Assessment ............................................................................................ 29 ANNEX 3. Operation Specific Annex ................................................................................................ 31 ANNEX 4. Required Accompanying Documentation ......................................................................... 39 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) The proposed Grant was prepared by a World Bank team led by Demet Kaya (Senior Economist, Task Team Leader (TTL), EAWM1), Michael Christopher Jelenic (Senior Public Sector Specialist, Co-TTL, EAWG1) and Patrick McCartney (Senior Economist, Co-TTL, EAWM1). The core team consisted of Anna Carlotta Allen Massingue (Senior Economist, EAWM1), Maria Elkhdari (Economist, EAWM1), Yuri Lima Handem (Energy Specialist, IAWE2), Camila Mejia Giraldo (Senior Digital Development Specialist, DAWDD), Daniel Nogueira-Budny (Senior Digital Development Specialist, IDD04), Catarina Isabel Portello (Senior Counsel, LEGAM), Isabella Micali Drossos (Senior Counsel, LEGAM), Donald Mphande (Lead Financial Management Specialist, ESAG1), Laurent Mehdi Brito (Senior Procurement Specialist, EAWP1), Eduardo Malasquez Carbonel (Senior Economist, EAWPV), Jose C. Janeiro (Senior Finance Officer, WFACS), Sering Touray (Economist, EAWPV), Nicolas Desramaut (Senior Environmental Engineer, SAWE1), Souleymane Hussein Seye (Environmental Specialist, SAWE1), Tomas Agustin Picca (Economist - consultant, EAWM1), Malvina Pollock (Consultant), Habiba Gitay (Climate Resilient Development Consultant), Sonia Sanchez Moreno (Operations Officer, AWMGW), Micky Ananth (Operations Officer, EAWM1), Theresa Bampoe (Senior Program Assistant, EAWM1), Etsehiwot Berhanu Albert (Program Assistant, EAWM1), and Ramatulay Heloysa Barbosa (Team Assistant, AWMGW). Overall guidance was provided by Keiko Miwa (Country Director, AWCF1), Abebe Adugna Dadi (Regional Director, EAWDR) and Hans Anand Beck (Practice Manager, EAWM1). The team is grateful to the comments and support from Daniela Marotta (Lead Economist, EAWM1), Edouard Al-Dahdah (Lead Country Economist and Program Leader, EAWDR), Rosa Brito Delgado (WBG Resident Representative, AWMGW) and Anne-Lucie Lefebvre (Former Resident Representative, AWMGW). The peer reviewers were Tobias Akhtar Haque (Lead Country Economist, Program Leader, ESADR), Helene Marie Grandvoinnet (Lead Public Sector Specialist, EGVPF) and Fiseha Haile (Senior Economist, EECM2). Philip M. Schuler (former Lead Economist, EAEM1) and Jose Daniel Reyes (Senior Economist, ELCMU) served as peer reviewers at the Concept stage. The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) @#&OPS~Doctype~OPS^dynamics@paddpfbasicinformation#doctemplate SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Operation ID Programmatic P500567 No Proposed Development Objective(s) The development objective is to: (i) strengthen public financial management and domestic resource mobilization; (ii) enhance energy and water utility viability and digital growth. @#&OPS~Doctype~OPS^dynamics@padborrower#doctemplate Organizations Borrower: The Republic of Guinea-Bissau Contact Title Telephone No. Email H.E.M. Soares Sambu Minister Of Economy 245966663396 sosambu1958@hotmail.com H.E.M. Ilidio Vieira Te Minister of Finance 245955395151 ilidio_94@hotmail.com Implementing Agency: Ministry of Finance Contact Title Telephone No. Email H.E.M. Ilidio Vieira Te Ministry of Finance 245955395151 ilidio_94@hotmail.com @#&OPS~Doctype~OPS^dynamics@padfinancingsummary#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? No SUMMARY Total Financing 10.00 DETAILS i The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) World Bank Group Financing International Development Association (IDA) 10.00 IDA Grant 10.00 IDA Resources (US$, Millions) Guarantee Credit Amount Grant Amount SML Amount Total Amount Amount National Performance-Based 0.00 10.00 0.00 0.00 10.00 Allocations (PBA) Total 0.00 10.00 0.00 0.00 10.00 @#&OPS~Doctype~OPS^dynamics@padclimatechange#doctemplate PRACTICE AREA(S) Practice Area (Lead) Contributing Practice Areas Governance; Poverty and Equity; Digital Development; Macroeconomics, Trade and Investment Energy & Extractives CLIMATE Climate Change and Disaster Screening Yes, it has been screened and the results are discussed in the Operation Document @#&OPS~Doctype~OPS^dynamics@padoverallrisk#doctemplate OVERALL RISK RATING Overall Risk  High ii The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) @#&OPS~Doctype~OPS^dynamics@paddpfannexpolicyandresult#doctemplate RESULTS Baseline Closing Period Strengthen public financial management and domestic resource mobilization Tax revenue as a percentage of GDP (Percentage) Dec/2023 Dec/2026 8.70 9.40 Share of public expenditures executed through the TSA, including wage bill payments (Percentage) Jun/2024 Dec/2026 15 25 The frequency the of online publication of consolidated and audited fiscal reports (Text) Jun/2024 Dec/2026 Ad hoc Semi-annual Share of civil servants and pensioners with biometric identification included in the SIGRHAP database (Text) Jun/2024 Dec/2026 7.60 >90 percent Enhance energy and water utility viability and digital growth Price of a data-only 2GB mobile-broadband basket (% of monthly GNI per capita) (Percentage) Jun/2024 Dec/2026 9.80 8.80 Share of women with access to internet (Percentage) Dec/2019 Dec/2026 13 25 Operating deficit of the national utility company Electricity and Water of Guinea-Bissau (EAGB) as a percentage of revenue. (Percentage) Jun/2024 Dec/2026 50 percent 40 percent Average cost of electricity per kWh (Amount(USD)) Jun/2024 Dec/2026 24 cents USD/ kWh 18 cents USD/ kWh GW of renewable energy capacity enabled (Gigawatt) Jun/2024 Dec/2026 0 20 iii The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) IDA PROGRAM DOCUMENT FOR A PROPOSED REFORM ADVANCEMENT DEVELOPMENT POLICY GRANT TO THE REPUBLIC OF GUINEA-BISSAU I. COUNTRY CONTEXT AND OPERATION SUMMARY 1. This proposed standalone Development Policy Financing (DPF) in the amount of an International Development Association (IDA) Grant of US$10 million equivalent is intended to strengthen fiscal governance and to improve public service delivery in Guinea-Bissau. The Program Development Objective and Pillars are to support the government’s efforts to: (i) strengthen public financial management (PFM) and domestic resource mobilization; and (ii) enhance energy and water utility viability and digital growth. This is the first DPF for Guinea-Bissau in 15 years and reflects the government’s commitment to reform and the partnership established with multilateral and bilateral development partners in recent years, including the ongoing International Monetary Fund (IMF) program under the Extended Credit Facility (ECF). 2. Guinea-Bissau remains highly fragile, facing considerable political instability over time, with a period of relative political stability followed by renewed political unrest. Since gaining independence in 1974, Guinea-Bissau has experienced four military coups, 17 attempted coups, a civil war, and frequent government turnover. Guinea-Bissau is listed as a Fragile and Conflict-Affected Situation (FCS) country and ranked 32nd out of 179 countries in the 2024 Fragile State Index, reflecting severe fragility in state legitimacy, elite cohesion, public services, and demographic pressures. 1 Legislative elections in 2014 marked a step toward civilian democracy. Legislative elections in June 2023 led to a new government in August 2023. However, in late 2023, security issues arising from investigations into alleged corruption led to the dissolution of Parliament and the postponement of the elections initially planned for 2024. Although political tensions remain high, the government has announced that presidential and legislative elections are scheduled for November 2025. 3. Economic growth in Guinea-Bissau has been low and volatile, while poverty continues to be widespread, with over half of Bissau-Guineans living below the poverty line. Real GDP growth per-capita averaged 2.1 percent between 2017 and 2022. From 2018 to 2021, Guinea-Bissau reversed the modest gains achieved in poverty reduction during the 2010-2018 period. Poverty reached 50.5 percent in 2021, a moderate increase of 2.9 percentage points with respect to 2018, while translates into 86,000 additional individuals living below the 2021 national poverty line. Similarly, other poverty measures such as the poverty gap and severity also deteriorated moderately from 2018 to 2021. Poverty in Guinea-Bissau continued to be predominantly a rural phenomenon in 2021, with 67 percent of the rural population living below the poverty line. 4. Despite rich natural resources, weak governance and limited resources have undermined the provision of vital public services, eroded trust in the state, and slowed poverty reduction in Guinea-Bissau. The country has rich natural resources (extractives, agricultural land, fisheries, and forests) and a strategic location. However, successive governments have struggled to implement sustainable reforms to improve public sector accountability, foster private sector-led growth, and enhance infrastructure and services, particularly in rural areas. The provision of vital public services, including access to electricity and digital infrastructure, is severely hampered by limited resources and poor governance. Weak governance, limited state presence, and poor access to electricity—especially outside the capital city Bissau—have slowed poverty reduction, with only a one-point decline between 2010 and 2018, to 47.6 percent. 5. This DPF supports the GoGB’s reforms to strengthen public financial management, create fiscal space, and enhance access to electricity and digital infrastructure. These reforms are intended to address the key bottlenecks in providing essential public services. Furthermore, improved power and digital services are intended to enable private sector development. The reforms supported by the DPF build on the 2020-2023 National Development Plan (NDP) to 1 See https://fragilestatesindex.org/country-data/ Page 1 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) address COVID-19 challenges and boost economic recovery. The government implemented reforms in debt management and Domestic Revenue Mobilization (DRM) and made progress under a Staff Monitored Program of the IMF, which paved the way for an ECF in 2023. While the DPF supports important progress, further reforms will be needed to address Guinea- Bissau’s broader development challenges, including its commodity dependence. The economy is over-reliant on the export of raw cashew nuts, which account for around 90 percent of export value and are the income source for around 80 percent of the population. This dependency renders the country susceptible to external shocks, including highly volatile international prices and adverse climatic conditions, such as irregular rainfall or floods. 6. Guinea-Bissau is highly vulnerable to the impacts of climate change, which adversely affects multiple economic sectors, including agriculture, energy and health. 2 The country experiences many climate-related extremes, including floods, droughts, and high temperatures, which are likely to be exacerbated by continued climate change. The country's low-lying coastal areas, home to 80 percent of the population and major areas of economic activity, experience multiple and increasing climate-related risks, including sea level rise, coastal flooding, storm surge, and salinization of water aquifers. These climate-related impacts disproportionally and adversely affect poor households as they are predominantly engaged in rain-fed agriculture and have the least financial capacity to manage these impacts. By 2050, without adaptation, climate change is expected to reduce real gross domestic product (GDP) by around 7.3 percent. Accelerated climate change will be particularly challenging to a country globally assessed to have the lowest capacity and institutional structures to adapt. 7. The selection of reform areas under this DPF was carefully aligned with ongoing World Bank engagements in Guinea-Bissau, ensuring sustained dialogue and capacity support, and reducing the risk of reform reversals. The DPF builds on existing investment projects in public sector strengthening, digital development, and energy, as well as a Bank Executed Trust Fund financed by the Global Tax Program. Complementary analytical work includes the Country Economic Memorandum (CEM, 2021), Public Expenditure Review (PER, 2023), the Systematic Country Diagnostic Update (SCD, 2023), Country Climate and Development Report (CCDR, 2024), and the Risk and Resilience Assessment (RRA, 2024). These engagements provide financial and institutional capacity-building support in mutually reinforcing areas to ensure the sustainability of the reform agenda. Given the country’s low institutional capacity, this approach allows for continuity even after the DPF closes, reducing the risk of reform reversals. The standalone modality for this operation was chosen to reintroduce the recipient to the DPF instrument after 15 years, leverage the increased development partner engagement and the ongoing IMF ECF program, capitalize on the reform momentum, and pave the way for potential future engagements. II. MACROECONOMIC POLICY FRAMEWORK 8. Guinea-Bissau’s macroeconomic policy framework is adequate for the proposed operation. Economic growth has remained robust despite a challenging cashew marketing and export campaign in 2024 and is projected to be resilient over the medium term. As a member of the West African Economic and Monetary Union (WAEMU) Guinea-Bissau benefits from a regionally anchored monetary and exchange rate policy. Improved spending controls contributed to reducing the fiscal deficit in 2024 despite lower cashew revenue. Fiscal consolidation remains a top priority for the government with a medium-term program aimed at reducing the overall fiscal deficit and public debt to levels consistent with WAEMU’s regional convergence criteria. The reinstitution of the Technical Committee of Arbitration of Budgetary Expenditure (COTADO), which takes a central role in approving expenditure, is evidence of this commitment. The consistency between 2 This summary is based on information from the CCDR 2024 - Guinea-Bissau (Full citation Guinea-Bissau, World Bank Group. Country and Climate Development Report, 2024), the updated SCD 2023 and Guinea-Bissau’s 2021 update to the Nationally Determined Contributions (NDCs) submitted to United Nations Framework Convention on Climate Change (UNFCCC) Page 2 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) fiscal and monetary policies is reinforced by WAEMU’s regional surveillance mechanisms. The authorities are pursuing important reforms, including those supported by this operation and those anchored by the ongoing IMF ECF program, 3 to support fiscal consolidation and debt sustainability, improve governance and reduce corruption. Although Guinea-Bissau is assessed at high risk of overall and external debt distress, debt is deemed sustainable according to the latest joint World Bank-IMF Debt Sustainability Analysis (DSA) from December 2024. In addition to COTADO, the reactivation of the Treasury Committee in early 2024 is key for implementing prudent debt management policies. This committee plays a central role in managing the country’s finances - including reviewing of spending, overseeing revenue collection, monitoring debt service payments, domestic borrowing and the use of government guarantees. Additional efforts to enhance debt management and transparency are progressing, including through active engagement with external creditors to restructure legacy arrears and actions under the IDA Sustainable Development Finance Policy (SDFP), such as a zero ceiling on non-concessional borrowing. A. Recent Economic Developments 9. Economic growth has remained robust despite a challenging cashew campaign in 2024. Real GDP growth averaged 5.1 percent between 2021 and 2023 (or 2.8 percent in per capita terms). Growth picked up from 4.4 percent in 2023 to 4.6 percent in 2024 (2.3 percent per capita), but was slightly lower than the 5.0 percent initially anticipated due to climatic shocks to cashew production, lower demand from India and logistical challenges at the port of Bissau. 4 Lower cashew production has been partly compensated by higher production of subsistence crops, which has contributed to sustaining growth in 2024. Higher farmgate prices and lower food prices boosted private consumption and supported activity in the service sector, especially hospitality and trade. Growth in the industrial sector remained strong driven by increased electricity production and robust activity in the construction sector (new airport terminal, rehabilitation of the port of Bissau and ongoing road infrastructure development), which together have compensated for lower exports and lower growth in public investments. Despite this robust growth, poverty has remained elevated given weak cashew campaigns in 2023 and 2024, as well as high prices for staple food items- including rice. 10. The Central Bank of West African States (Banque Centrale des États de l'Afrique de l'Ouest, BCEAO) kept monetary policy tight on behalf of WAEMU, supporting declining inflation in Guinea-Bissau. Guinea-Bissau is a member of the WAEMU, with monetary and exchange rate policies managed by the BCEAO. The BCEAO maintains a fixed peg between the CFA Franc and the Euro. To counter inflation in the region —which surged to 7.9 percent in 2022— BCEAO policy interest rates were raised by 150 basis points between June 2022 and December 2023 to 3.5 percent for liquidity calls and 5.5 percent for the marginal lending facility and have remained unchanged since. In Guinea-Bissau, monetary policy tightening, along with lower international food and oil prices, have put inflation back on a downward path. Annual average inflation reached 3.8 percent in 2024, down from 7.2 percent in 2023, but remains above the WAEMU 1-3 percent target. Average food inflation decreased to 1.8 percent in 2024, from 5.9 percent in 2023. Regional foreign exchange reserves increased from 3.5 months of imports in 2023 to 4.7 months in 2024, reflecting the resumption of international bond issuances, IMF and World Bank disbursements. 11. Despite easing international import prices, lower cashew exports caused the current account deficit (CAD) to widen to 8.5 percent of GDP in 2024, from 8.3 percent in 2023. Given the country's heavy reliance on cashew exports, it is highly vulnerable to climate and terms of trade shocks. The CAD rose from 0.7 percent of GDP in 2021 to 8.3 percent in 3 The program includes quantitative performance criteria (QPC) and indicative targets (IT) that support fiscal consolidation and debt sustainability, such as a floor on tax revenue, a ceiling on wage bill spending, a floor on the domestic primary balance, a ceiling on non-concessional borrowing as well as arrears clearance. 4 India accounts for 60 percent of Guinea-Bissau’s cashew exports. In 2024, India’s cashew import volume declined by 3 percent relative to 2023 and 20 percent relative to 2022, cumulatively until November. This decrease is, however, likely to be temporary given a recent strong rise of import prices, which increased from US$1091/ton in June 2024 to US$1714/ton in November 2024. Page 3 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) 2023, reflecting declining international cashew prices and rising costs of food and energy imports. The country continued to grapple with exogenous shocks in 2024, as lower cashew export volumes and a US$100 drop in cashew prices (to US$950 per ton) reduced goods exports to 11.2 percent of GDP, from 13.3 percent of GDP in 2023. This has been partially offset by a decrease of goods imports by 0.6 percentage point (pp), to 18.3 percent of GDP in 2024, driven by lower food and fuel import prices and volumes. The CAD has been primarily financed through treasury securities issued in the regional markets, with additional support from the IMF's ECF. 5 12. Improved spending controls contributed to reducing the fiscal deficit to 7.3 percent of GDP in 2024 from 8.2 percent in 2023, despite underperforming revenues. Higher-than-expected off budget expenditures, debt service, lower revenue from weaker cashew exports, and temporary rice and fuel subsidies had increased the overall fiscal deficit to 8.2 percent of GDP in 2023, up from 6.2 percent in 2022. To address these fiscal slippages, the authorities have implemented stringent expenditure controls through the COTADO, which helped reduce discretionary spending. Wage bill spending also decreased thanks to strict controls and the adherence to the hiring freeze policy. As a result, total expenditures are estimated to have declined by 0.4 pp to 20.9 percent of GDP in 2024. On the other hand, tax revenue fell significantly below target due to weaker tax collection from declining cashew exports, lower-than-expected revenue from telecoms, banks, and gas stations, and lower taxes on imports. As a result, the fiscal deficit declined to 7.3 percent in 2024. Financing needs were met by concessional loans, treasury securities, and domestic commercial bank borrowing. 13. The authorities have implemented important corrective measures to keep the domestic primary balance on the consolidation path. In April 2024, revenue mobilization efforts were enhanced by: (i) reversing fuel tax cuts implemented in September 2023; (ii) increasing fuel tax reference prices from CFAF 170/liter in September 2023 to CFAF 411/liter in May 2024 and CFAF 437/liter in October 2024 for diesel, aligning them with market prices; and (iii) suspending rice subsidy disbursements. Tax audits by the Directorate-General of Duties and Taxes (DGCI) have been strengthened, allowing for the identification and collection of at least CFAF 1.3 billion (0.1 percent of GDP) of tax arrears accumulated in 2024. In terms of non-tax revenue, a new fishing agreement was signed with the EU in September 2024 allowing an increase of the European fishing compensation by EUR 1.4 million per year to EUR 17 million (0.8 percent of GDP). On the expenditure side, to rationalize non-priority expenditure and strengthen expenditure controls, two key expenditure-control committees— the COTADO and the Treasury Committee—were reactivated in January 2024. 14. Public debt levels remain above pre-pandemic levels, reflecting elevated financing needs and the tightening of financial conditions in the regional market. Public debt is estimated to have reached 82.3 percent of GDP in 2024, up from 76.5 percent in 2023, and significantly above the pre-pandemic average of 57.9 percent of GDP (2015–2019) due to the higher fiscal deficit, lower budget support, higher interest expenses, and currency depreciation. Domestic financing continues to represent a large share of the debt portfolio, accounting for 55.3 percent of total debt. Domestic debt stock is dominated by public securities which accounted for 70 percent of the domestic debt stock in 2024 (up from 66.3 percent in 2023). Notably, the stock of short-term securities increased by 57 percent in 2024 driven by a high concentration of issuances of T-bills in the regional market, with a maturity of less than 12 months and an average interest rate of 8.95 percent. External debt, which represents 44.7 percent of total debt, is largely held by multilateral lenders (over 80 percent of external debt), with the World Bank and the West African Development Bank (Banque Ouest Africaine de Développement, BOAD) being the country’s primary external creditors. Fiscal space is constrained by servicing of obligations - debt servicing is estimated to have accounted for 16.2 percent of GDP (155.5 percent of revenues excluding grants, and 119.1 including grants) in 2024, with the majority allocated to obligations on the regional market and local commercial loans. 15. The government, supported by technical assistance (TA) from the IMF and the World Bank, has advanced key reforms in debt management and transparency to enhance sustainability and improve oversight. Debt oversight has 5 Disbursements totaled US$22.6 million in 2024 (1 percent of GDP); and US$39.9 million since program approval (see II.C for more information). Page 4 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) been strengthened by the adoption of key decrees in July 2021, which established a Public Debt National Committee and formalized the organization and operations of the Debt Directorate. The government utilizes the Debt Management and Financial Analysis System (DMFAS) for external debt recording and is working to integrate domestic debt into the system. TA from the IMF and World Bank has supported improved debt reporting to international databases such as the International Debt Statistics (IDS) and the Quarterly External Debt Statistics while also enhancing debt transparency. 6 Capacity has been further reinforced through two IMF AFRITAC West TA missions in 2023 and 2024, alongside ongoing training to improve debt recording, monitoring, and data coverage. Guinea-Bissau’s first Medium-Term Debt Strategy (MTDS), covering 2025-2027, was approved and published on February 25, 2025. 16. The authorities have made progress in settling legacy arrears in recent years. According to the Seventh Review of the IMF’s ECF program, debt and payment arrears decreased by a cumulative 1.1 pp of GDP between 2021 and 2024 – and the stock of known arrears at the end of 2024 is estimated at about US$26 million (1.2 percent of GDP). These reductions reflect ongoing clearance efforts, particularly for external arrears, and the prioritization of addressing domestic liabilities. In 2024, legacy external arrears were reduced by US$1.5 million (0.1 percent of GDP) thanks to the cancelation of legacy external arrears previously owed to Russia in October 2024. The remaining arrears are owed to Brazil and Pakistan. 7 Domestic arrears have been slightly reduced from CFAF 13.3 billion (1.0 percent of GDP) in 2023 to CFAF 12.9 billion (0.9 percent of GDP) in 2024. Moreover, the authorities have implemented corrective actions that have substantially improved the debt service payment process and prevented the recurrence of technical arrears. Since the implementation of the new debt service procedure, which requires the Treasury to send a single batch of payment instructions to the BCEAO for all external debt services due each month—ten days prior to the start of the month—there has been no new occurrences of external debt service arrears. 17. Fiscal risks related to state-owned enterprises (SOEs) are primarily concentrated in the public utility company, Electricity and Water of Guinea-Bissau (Eletricidade e Águas da Guiné-Bissau, EAGB). In 2023, EAGB accrued significant public debt to meet overdue obligations on its electricity single-supplier contract with Karpower, often supported through government guarantees. However, good progress has been made to mitigate these risks, including the diversification of power sources through the Gambia River Basin Development Organization (Organisation pour la mise en Valeur du Fleuve Gambi, OMVG) Project (P146830), which connects Bissau to a hydropower plant in Guinea-Conakry. Since August 2024, Bissau has been entirely powered by electricity from the OMVG at approximately half the cost of Karpower. To restore EAGB’s financial viability, the government and EAGB are currently negotiating with Karpower the terms of contract termination. The authorities are also expediting the completion of the ring transmission line linking Bissau to the OMVG network and extending it to the new Bor power station, which will serve as a critical backup during the dry season. Moreover, to boost EAGB’s revenue, the Council of Ministers issued a decision to eliminate free electricity for employees of EAGB and the Ministry of Energy. 6As has been the case for the publication of the quarterly debt bulletin, also supported by the World Bank’s SDFP in FY23. 7The settlement of arrears with Brazil (US$1.9 million) is pending final approval from the Brazilian parliament. Since November 2021, requests have been sent to Pakistan (US$2.2 million) to attempt resolving remaining external arrears. Page 5 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Table 1. Selected Economic Indicators – 2021 - 2028 2021 2022 2023 2024e 2025f 2026f 2027f 2028f Annual percentage change, unless otherwise indicated National Accounts GDP Growth at constant prices 5.2 5.6 4.4 4.6 5.1 5.2 5.2 4.7 Demand Side Private Consumption 11.2 9.1 5.1 5.9 6.4 6.0 6.0 5.6 Government Consumption -0.9 0.6 -0.9 6.1 0.6 0.5 0.5 0.5 Gross Fixed Capital Formation -12.0 2.7 6.6 13.9 1.2 1.6 2.0 1.7 Exports 20.1 -12.5 -3.0 -3.0 5.6 4.8 4.0 3.6 Imports 3.7 10.6 -4.2 2.0 5.5 4.0 4.0 3.7 Production Side Agriculture 9.1 1.4 4.7 4.5 6.0 5.2 5.0 5.0 o/w Cashew Sector 8.5 7.5 12.2 -1.0 5.0 4.0 4.0 4.0 Industry -0.4 2.4 12.7 5.9 6.0 6.7 6.8 6.3 Services 1.9 9.8 1.4 4.1 4.1 4.6 4.7 4.4 Inflation GDP deflator 2.2 4.3 5.3 2.2 2.1 2.0 2.0 2.0 Consumer prices (average) 3.3 7.9 7.2 3.8 3.3 3.0 2.5 2.0 Selected Monetary Accounts Banks' credit to the government 55.3 32.8 28.7 7.9 1.6 -4.5 -5.0 -3.6 Banks' credit to private sector 23.5 -0.5 9.8 9.5 9.2 8.9 7.9 7.4 Broad money (M2) 20.9 3.5 -1.1 7.0 4.7 5.4 6.1 6.6 External sector Exports fob 40.4 -6.3 -4.1 -5.5 27.6 11.4 10.0 3.6 Imports fob -21.3 80.5 -1.8 3.9 9.7 6.4 6.8 3.4 Percent of GDP, unless otherwise indicated Current account balance (incl. grants) -0.7 -8.0 -8.3 -8.5 -6.5 -5.6 -4.6 -4.0 Exports of Goods 16.0 13.3 11.2 9.3 11.5 12.0 12.5 12.9 Imports of Goods 18.6 21.6 18.9 18.3 18.5 18.4 18.2 18.9 Foreign Direct Investment 1.0 1.2 1.2 1.2 1.2 1.3 1.4 1.2 Nominal exchange Rate (average) 554.5 623.8 605.3 606.3 .. .. .. .. Debt Public debt (external and domestic) 72.3 75.5 76.5 82.3 80.5 77.6 74.6 72.4 External debt 37.0 36.5 34.2 34.8 34.5 33.2 31.9 30.0 Debt service 12.9 7.6 11.0 16.2 20.0 21.7 22.3 25.5 Fiscal Accounts Total revenue and grants 13.8 14.3 13.1 13.6 15.2 15.4 15.6 15.8 Total expenditure and net lending 20.9 20.5 21.3 20.9 20.0 19.4 18.9 18.8 Overall fiscal balance (with grants) -7.1 -6.2 -8.2 -7.3 -4.8 -4.0 -3.3 -3.0 Memorandum items GDP per capita (%) 2.9 3.2 2.1 2.3 2.8 3.0 3.0 2.8 Nominal GDP (CFAF billion) 1042 1147 1261 1348 1447 1552 1666 1794 Cashew export quantity (thousands of tons) 234 183 193 167 200 210 221 231 Cashew export prices (US$ per ton) 1154 1200 1050 950 1000 1200 1236 1236 Source: Bissau-Guinean authorities, IMF, and World Bank estimates and projections (end-March 2025). 18. Guinea-Bissau’s financial sector is small, underdeveloped, and highly concentrated, with six banks holding over 90 percent of the sector’s assets. The sector remains banking-centric, with limited financial inclusion and depth. Credit to the private sector was 13.7 percent of GDP in 2023, below the WAEMU average and decreased to 11.3 percent of GDP in June 2024 due to tight regional financial conditions and high budget financing needs. The financial sector’s soundness deteriorated due to poor cashew campaigns, leading to an increase in non-performing loans (NPLs) from 10 percent in 2022 to 13.9 percent in 2023, and further to 14.9 in June 2024, with a significant deterioration in provisioning. Despite Page 6 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) high liquidity, the sector faces challenges from an undercapitalized systemic bank. 8 The government’s disengagement from this large and undercapitalized bank is ongoing, with the investor’s purchase offer and capital increase proposal submitted to the West African Monetary Union (WAMU) regional banking commission, and was approved in February 2025. The new statutes of the bank were approved in March 2025. Moreover, the third-party audit to assess the viability and solvency of the undercapitalized bank is progressing. Efforts to diversify the financial sector and improve financial inclusion are crucial. The WBG is supporting efforts to strengthen the financial sector’s legal and regulatory framework, as well as to promote the use of digital payments. 9 The absence of a robust microfinance sector exacerbates financial inclusion challenges, particularly for underserved populations. Enhancing financial sector diversification and depth is vital for economic growth and resilience. B. Macroeconomic Outlook and Debt Sustainability 19. Real economic growth is projected to remain resilient over the medium term, stabilizing around 5.2 percent, sustained by robust private demand and public investments in key sectors. Growth is projected at 5.1 percent in 2025 (2.8 percent per capita), under the assumption of a good cashew campaign and higher external demand. Increased producer prices and international cashew prices will boost private demand and activity in the service sector (including trade and hospitality), while construction activity is expected to maintain its momentum. Over the medium term, the agricultural sector, particularly cashew production, is expected to remain an important driver of growth, contributing about 35 percent to real GDP. Importantly, dividends from recent government investments into agricultural inputs should support strong cashew production and exports, enhancing rural incomes and supporting private consumption. Beyond cashews, growth will be supported by activity in the construction and service sectors, with the relatively lower cost of electricity (due to the shift to OMVG as a power source) and investments in roads and connectivity infrastructure (Bissau port and the new airport terminal) contributing to enhance trade and regional integration. These reforms, along with actions supported under Pillar B of this operation – in digital and energy sectors -will contribute to create a more enabling environment for economic activity, including enabling conditions to attract private investment. Inflation is expected to stabilize at 2.0 percent by 2028, reflecting the ongoing decline in domestic electricity prices and easing global food and fuel prices. 20. External pressures are expected to ease further thanks to improved terms of trade, reduced external financing needs, and lower import demand as a result of continued fiscal consolidation. The CAD is projected to decrease to 6.5 percent of GDP in 2025 - due to the combined effect of lower fuel import prices and higher exports supported by higher cashew production and exports prices – and gradually decline to 4.0 percent of GDP by 2028. Efforts to reduce the cost of energy, with the transition to cheaper hydropower energy, and the construction of the new road connecting Guinea- Bissau to Senegal are expected to contribute to the improvement of the external position through higher investments and inter-regional trade. Remittances are expected to remain stable, at around 5 percent of GDP. External financing needs for the 2025-2028 period are expected to be mainly covered by budget support grants, concessional borrowing and disbursements under the IMF program. Foreign direct investment (FDI) is projected to remain around 1.2-1.3 percent of GDP. 8 This undercapitalized bank plays an important role in the provision of credit to the private sector, through financing the cashew campaign and bringing financial services to rural areas. The bank holds about 40 percent of deposits and has the largest number of branches throughout the country. The bank suffers from a high level of NPLs, including cross arrears from government creditors which had NPLs with the bank. 9 This activity is supported through the Western Africa Regional Digital Integration Program (P176932), which includes a component on Digital Financial Services. Page 7 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Table 2. Key Fiscal Indicators (percent of GDP)   2021 2022 2023 2024e 2025f 2026f 2027f 2028f Total Revenues 13.8 14.3 13.1 13.6 15.2 15.4 15.6 15.8 Tax revenues 8.9 8.6 8.7 8.2 9.1 9.4 9.8 10.1 Taxes on income and profit 2.9 3.4 3.3 3.1 3.3 3.4 3.6 3.6 Taxes on goods and services 3.9 3.4 3.8 3.5 3.9 4.1 4.3 4.5 Taxes on international trade 2.1 1.8 1.6 1.6 1.9 1.9 1.9 2.0 Non-tax revenues 1.5 2.2 2.4 2.2 2.4 2.4 2.3 2.3 Grants 3.4 3.5 2.0 3.2 3.7 3.6 3.5 3.4 Total Expenditures 20.9 20.5 21.3 20.9 20.0 19.4 18.9 18.8 Current expenditures 14.5 14.4 15.0 15.0 13.8 13.1 12.6 12.6 Wages and salaries 5.2 5.7 4.7 4.6 4.4 4.4 4.3 4.3 Goods and services 3.1 2.3 2.2 2.2 1.9 1.8 1.7 1.7 Transfers 3.1 2.6 2.3 1.7 1.6 1.6 1.5 1.5 Interest 1.3 1.3 2.3 3.3 2.9 2.8 2.7 2.7 Other 1.8 2.5 3.5 3.2 3.0 2.5 2.4 2.4 Net acquisition of nonfinancial assets 6.2 6.1 6.2 5.9 6.2 6.3 6.3 6.2 Primary balance -5.8 -4.9 -5.9 -4.0 -1.9 -1.2 -0.6 -0.3 Overall fiscal balance -7.1 -6.2 -8.2 -7.3 -4.8 -4.0 -3.3 -3.0 Change in arrears -1.0 0.0 -0.5 -0.8 -0.2 0.0 0.0 0.0 Float and Statistical discrepancy 0.4 -2.0 -1.0 0.0 0.0 0.0 0.0 0.0 Overall fiscal balance (cash basis) -7.7 -8.2 -9.7 -8.1 -5.0 -4.0 -3.3 -3.0 Total financing 7.7 8.2 9.7 8.1 5.0 4.0 3.3 3.0 Net liabilities 1.0 -0.1 -0.1 0.8 0.0 0.0 0.0 0.0 Net domestic financing 6.6 6.4 8.7 6.0 3.8 2.7 2.1 2.0 Net external financing 0.1 1.9 1.1 1.3 1.2 1.3 1.2 1.0 Source: Bissau-Guinean authorities, IMF, and World Bank estimates and projections (end-March 2025) 21. Improved revenue collection, strengthened expenditure controls, and continued donor engagement will contribute to improving the fiscal deficit. The fiscal deficit is projected to narrow to 3 percent of GDP by 2028, with public debt falling to 72.4 percent of GDP in the same year. The fiscal consolidation path builds on efforts to date, including the authorities’ commitment to enhance revenue mobilization and successful rationalization of expenditures over the last two years supported by the IMF program. Going forward, the authorities are implementing a series of revenue-enhancing measures to support the fiscal consolidation agenda, which could yield up to 1.5 percent of GDP in additional revenues in 2025 (Table 3). Among others, these include increased tax reference prices for cashew, cement and used cars as well as the commitment not to renew the existing exemption convention with the cement company (CIMAF), which will expire in July 2025. 10 The ongoing roll-out of the Value Added Tax (VAT), supported by Prior Action 1 (PA1), should also contribute to enhancing revenue mobilization over the medium term. Further improvements in collection are expected in 2026 resulting from strengthening customs infrastructure and potential changes in tax legislation once Parliament is reinstated. On the expenditure side, the government is focused on controlling public expenditure, including rationalizing the wage bill and improving PFM, which will be supported by the operationalization of the Treasury Single Account (Prior Action 2). The 2025 Budget enforces stricter disbursement controls on project loans and guarantees, with all disbursement requests requiring Minister of Finance approval. Expenditure rationalization will be supported by measures such as suspending non-priority projects and banning guarantees other than those for SOEs and infrastructure projects. The Budget also aligns with national development priorities, including increased investments in health, education and the environment. 11 Guinea-Bissau will face a significant increase in the public debt service burden between 2025 and 2029. During this period, 10This follows a review carried out by the Inspector General of Finance in 2024 that highlights exemptions have mostly benefitted the company. 11 For example, the health sector budget increased from 11 percent in 2024 to 17 percent of total expenditures in 2025. The education budget also saw an increase of 4 percent between 2024 and 2025, and now represents 5 percent of total expenditures. Financing linked to the environment has increased by 80 percent and now accounts for 6 percent of planned spending, slightly exceeding the budget for education. Page 8 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) both principal and interest payments will remain high, reflecting the profile of the current debt portfolio, marked by concentrated maturities and considerable financial tightening in the regional market. Table 3. Revenue Measures in 2025, (percent of GDP) Measures Impact in % of GDP Status Measures approved in the FY25 budget law 0.75 Increase in the tax reference price of cashew nuts from US$800/ton to US$900/ton 0.08 Implemented No renewal of tax exemptions for CIMAF 0.09 To be implemented in July 2025 Increase in tax reference price of imported cement from CFAF 54/kg to 65/kg 0.01 Implemented Update of tax reference prices and other measures for used cars 0.05 Implemented Elimination of exemptions of sales taxes on fuels at the point of sales 0.32 Implemented Physical inspection of all trucks at the Safim Entry Post 0.15 To be implemented in 2025 Connecting systems of hotels, supermarkets, cement venders and factories to DGCI 0.05 To be implemented in June 2025 New measures supported by the IMF program 0.71 Increase in a tax reference price of cashew to US$1000/ton and its specific rate tax 0.17 Implemented Increase in a tax reference price of alcoholic drinks 0.09 Implemented Resumption of a stramp duty on mobile money 0.03 Implemented Single license for mobile operators (non-tax revenue) 0.35 New measure Daily tax withholding from APGB 0.07 Implemented Total 1.46   Source: Guinea Bissau’s 2025 Budget law and IMF. 22. Enhanced revenue mobilization, sustained growth and increased efforts to draw on instruments in the regional market with a longer maturity will help keep debt sustainable. The most recent World Bank-IMF DSA from December 2024 indicates that public debt in Guinea-Bissau is sustainable, but with a high risk of overall and external debt distress. Guinea-Bissau’s overall risk of debt distress was downgraded to “high” in the January 2021 DSA, and has been maintained at this rating since. The December 2024 DSA shows that the PV of external debt-to-GDP and the external debt-service-to- revenue both remain below the indicative thresholds for the whole projection period. The PV of external debt-to-export ratio remains above thresholds for several years but gradually declines over the medium term and falls below the threshold by 2029. The external debt service-to-exports ratio breaches limits between 2030 and 2032 before declining. The recent reprofiling of debt with BOAD has reduced debt service obligations through 2029, providing relief amid prolonged shocks to cashew exports. The PV of total public debt-to-GDP remains above the 35 percent benchmark but follows a downward trajectory under the baseline scenario. Debt sustainability is supported by WAEMU safeguards, fiscal consolidation efforts, limited net issuance, and the consistent improvement of external debt indicators over the medium term. Authorities are committed to clearing all audited and recognized domestic arrears by 2025. Table 4. External Financing Needs and Sources (million of US$) 2021 2022 2023 2024e 2025f 2026f 2027f 2028f Financing Requirements -62.8 -159.1 -199.3 -215.8 -169.7 -157.5 -144.6 -131.5 Current Account Deficit -14.0 -148.0 -172.3 -188.9 -156.6 -143.7 -126.8 -112.1 Debt amortization -49.0 -11.0 -27.0 -26.9 -13.1 -13.8 -17.8 -19.4 Available Financing 62.8 159.1 199.3 215.8 169.7 157.5 144.6 131.5 Capital grants 63.8 65.1 41.1 71.2 88.9 93.1 97.0 84.1 FDI inflows (net) 17.7 21.2 24.8 25.4 27.6 33.8 38.9 32.6 Debt disbursement 25.5 38.4 27.0 11.7 22.6 44.9 49.5 48.1 Other 43.5 -45.6 62.5 79.3 15.6 -11.5 -31.0 -20.0 IMF credit (net) 20.2 0.0 17.6 22.6 12.0 0.0 0.0 0.0 Change in Reserves (+ = Increase) -112.2 86.0 13.7 5.6 3.0 -2.8 -9.7 -13.3 Errors & Omissions 4.4 -5.9 12.6 0.0 0.0 0.0 0.0 0.0 Source: Bissau-Guinean authorities, IMF, and World Bank estimates and projections (end-March 2025)  Page 9 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Figure 1. Public Debt Sustainability Analysis Source: Bissau-Guinean authorities, IMF, and World Bank estimates and projections (joint World Bank-IMF, December 2024) Figure 2. Public and Publicly Guaranteed External Debt Under Alternative Scenarios    Source: Bissau-Guinean authorities, IMF, and World Bank estimates and projections (joint World Bank-IMF, December 2024) Page 10 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Table 5. Public and Publicly Guaranteed Debt Stock and Debt Service Debt Stock (e.o.p) Debt Service 2023 2024 2025 2024 2025 in million US$ Percent of Total Percent of GDP in million US$ Percent of GDP Total PPG Debt 1592.7 100.0 76.5 361.0 481.1 16.2 20.0 Domestic Debt 881.3 55.3 42.3 325.1 456.3 14.6 19.0 Treasury bills 530.1 33.3 25.4 224.1 325.4 10.1 13.5 Commercial Banks loans 211.5 13.3 10.2 99.1 122.7 4.5 5.1 Others 117.6 7.4 5.6 1.2 4.7 0.1 0.2 Payment arrears 22.1 1.4 1.1 0.6 3.5 0.0 0.1 External Debt 711.4 44.7 34.2 35.8 24.8 1.6 1.0 Multilateral creditors 581.0 36.5 27.9 32.1 21.1 1.4 0.9 Bilateral Creditors 130.4 8.2 6.3 3.7 3.7 0.2 0.2 Paris Club 10.2 0.6 0.5 0.6 1.0 0.0 0.0 Non-Paris Club 120.2 7.5 5.8 3.1 2.7 0.1 0.1 Memo items Contingent liabilities 31.2 2.0 1.5 15.9 0.9 0.7 0.0 Source: Bissau-Guinean authorities, IMF, and World Bank estimates and projections (Dec 2024 DSA and end-March 2025 data). 23. Despite the recent progress, there are significant risks to the outlook. Economic growth could be dampened by weak performance of the cashew sector, international shocks to commodity markets, higher food prices, and delays in resolving outstanding arrears with Karpower. Climate shocks, weak performance of SOEs and banking sector fragilities could generate contingent liabilities. While the authorities are currently committed to a robust reform agenda, political and institutional instability, and uncertainty regarding the election timetable could weaken the fiscal consolidation agenda and momentum for structural reform, including those in the energy sector. The expected improvement in the debt trajectory hinges on a large fiscal consolidation in 2025. While the authorities have been successful in containing spending in recent years, there is a risk of spending overruns in the runup to the elections scheduled for late-2025. In addition, there is uncertainty in the yield of some revenue-raising measures. The overreliance on short-term maturity treasury securities also poses a risk to debt sustainability given increased exposure to rollover and interest rates risks. This underscores the need for effective enhancement of revenue mobilization as well as a transition to use of treasury securities with longer maturities. The policy reform program supported by this operation, as well as the broader World Bank program and support provided by the IMF ECF program and other development partners, are expected to mitigate some of these risks. C. IMF Relations 24. The seventh review under the ECF program was concluded in December 2024. 12 Guinea-Bissau is under a three- year ECF arrangement of SDR 28.4 million (about US$38.4 million), approved in January 2023. The program’s objective is to secure debt sustainability while supporting an economic recovery, improving governance, reducing the risk of corruption, and creating fiscal space to sustain inclusive growth. Quantitative Performance Criteria in the program include, among others, targets on tax revenue, domestic primary balance, and new concessional loans. The IMF Board approved an augmentation of access to SDR 39.8 million (US$53.1 million equivalent) in November 2023. The seventh review of 12Guinea-Bissau established a track record of reform through a Staff-Monitored Program before entering into the ECF program in February 2023. The ECF program has structural benchmarks related to revenue mobilization, public financial management, SOE oversight and transparency, anti- corruption measures, and debt management. Besides there are quantitative performance targets on tax revenue, domestic primary balance, new concessional loans among others. Performance have been overall strong under the ECF program. Page 11 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) program implementation, approved on December 16, 2024, 13 highlighted the country’s strong performance, with all nine performance criteria met in June 2024 and notable progress in structural reforms, particularly in the energy sector. Strengthening fiscal management, expanding cashew processing, promoting tourism, and supporting women and the youth remain key. However, significant risks remain due to socio-political challenges and limited capacity. The next review mission is planned for the spring of 2025, and Board discussion in early June. The World Bank and IMF teams have been collaborating very closely with regards to the complementarity with the reforms supported by the Guinea-Bissau DPF, the country macroeconomic monitoring, and the DSA preparation. III. PROPOSED OPERATION A. Link to Government Program, CPF, other WBG operations, and Corporate Priorities 25. The government’s development goals are outlined 2020-2023 NDP, pending development of the new NDP. The government has confirmed that the priorities of the 2020-2023 NDP remain valid in the interim. The 2020-2023 NDP was designed in response to COVID-19 and to drive the economic recovery. It features six strategic objectives: consolidating democracy and modernizing public institutions; reforming the economy to promote growth and employment; developing infrastructure; developing human capital; promoting regional integration; and fighting climate change and preserving biodiversity and natural capital. The new 10-year NDP under preparation will cover the period 2025 – 2034 is expected to be approved in May 2025. Discussions during its preparation are focused on six thematic areas: public administration, institutional capacity and decentralization; agriculture, fisheries, food security and environment; macroeconomic management, private sector and jobs; economic infrastructures, energy and digital economy; and peace and security. This underscores the government's commitment to the same strategic priorities and the need to continue supporting them. 26. The DPF directly supports four objectives of the NDP. Pillar A aligns with the objectives of consolidating democracy and modernizing public institutions; and reforming the economy to promote growth and employment. This Pillar is also in line with new NDP thematic areas of discussions focused on public administration and institutional capacity, and macroeconomic management and jobs. Similarly, Pillar B aligns with the objectives of developing infrastructure; and fighting climate change and preserving biodiversity and natural capital. This pillar also aligns with focus areas under the new NDP related to economic infrastructures, energy and digital economy as well as environment. 27. The proposed operation supports the objectives of the World Bank Group’s Country Partnership Framework (CPF) for the Republic of Guinea-Bissau covering the period FY18-FY21 and extended by the Performance and Learning Review through FY23 as well as the new CPF for FY26-FY30 currently under development. DPF Pillar A directly contributes to the CPF high-level outcome “Increased Government Effectiveness and Transparency”, while DPF Pillar B contributes to two CPF objectives: “increase access to sustainable energy” and “increase access to and use of broadband connectivity”. The PAs and result indicators of the proposed operation are directly linked to the New WBG Scorecard Indicators. These indicators are: (i) a target of tax revenue equal to or higher than 15 percent of GDP; (ii) GW of renewable energy capacity enabled; (iii) the percentage of the population with access to electricity; (iv) percentage of the population using the internet; and (v) state of online e-government service provision. Ongoing and planned Investment Project Financing (IPF) and TA programs will accompany the implementation of the DPF across the two pillars. 28. This operation aligns with the goals of the Paris Agreement. The reforms are consistent with the goals of the NDP and its climate commitments (mitigation and adaptation) outlined in the 2021 updates to the Nationally Determined Contributions (NDCs) and consider the WBG’s CCDR. PA7 is consistent with CCDR’s priority area to promote the 13 The Board approval allowed for a disbursement of SDR 5.43 million (US$7.2 million), with total disbursement under the program at US$ 9.9 million. Page 12 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) development of renewable and clean energy. From a mitigation perspective, none of the prior actions are likely to cause a significant increase in Greenhouse Gas (GHG) emissions nor introduce or reinforce significant and persistent barriers to impede the transition to low-GHG emission development pathways. Regarding adaptation and resilience goals, risks from climate hazards are unlikely to have adverse effects on the contribution of the prior actions to the PDO. PA5 and PA7 are likely to contribute to improved digital connectivity, reduction in air pollution, reduce the effect of climate extremes on power generation and decrease the cost of electricity; thus, enhancing the climate resilience of the population through improved health and income/savings and create fiscal space for climate resilient and adaptive action by the government. B. Prior Actions, Triggers, Expected Results and Analytical Underpinnings 29. The proposed standalone operation is organized around two pillars: (A) strengthen public financial management and domestic resource mobilization; and (B) enhance energy and water utility viability and digital growth. The seven prior actions along with the expected results indicators for the proposed DPF under two pillars are presented below, and in Annex 1. The bibliography and analytical underpinnings for the prior actions are presented in Annex 4. PILLAR A: STRENGTHEN PUBLIC FINANCIAL MANAGEMENT AND DOMESTIC REVENUE MOBILIZATION Prior Action #1. To improve domestic revenue mobilization and enhance the efficiency, accuracy, and compliance of tax administration processes, the Recipient, through the Ministry of Finance, has issued a Ministerial Order to create the necessary operational framework to implement the VAT Law (Law 04/2022), including, conditions to: (i) migrate credit balances on the sales tax to VAT; and (ii) develop VAT declarations, as evidenced by Ministerial Order (Despacho) No. 95/GMF/2024, dated August 2, 2024. Rationale 30. At around 8.2 percent of GDP in 2024, Guinea-Bissau’s tax-to-GDP ratio is one of the lowest in the world. The narrow tax base and low tax administration capacity have been key obstacles to improving tax revenue performance. Moreover, DRM efforts have been hampered by obsolete tax policy frameworks, which are undermined by numerous exemptions (PER, 2023). Consequently, this has led to a rapid increase in debt levels. More importantly, the high cost of servicing this debt is expected to further reduce the already tight fiscal space over the medium-to-long term, constraining the chronically limited development and social spending. To modernize the tax system, improve DRM and better align the system with WAEMU directives, Parliament approved a new VAT Bill (Law 04/2022) to replace the antiquated sales tax law. 14 Despite this important step, the rollout has been delayed several times owing to capacity constraints and institutional weaknesses. Policy Content 31. To address this, the DPF supports critical steps to ensure that the necessary operational framework is in place to begin implementation of the VAT. Specifically, through the issuance of Ministerial Order 95/2024, which approved the second stage of the implementation of Fiscal Reforms, the Minister of Finance outlined the pending actions needed, and accompanying timeline, to ensure the VAT can be implemented. These actions include the development of VAT declaration forms, migrating credit balances on the existing sale tax to VAT, and registering VAT taxpayers. The collection of VAT revenues is to be carried out through the already functioning digital tax payment platform, Kontaktu, thus strengthening collection and compliance efforts. Kontaktu will also facilitate reimbursement of overpaid taxes through a credit system, instead of a physical reimbursement. This PA is supported by TA from the IMF’s Fiscal Affairs Department and under the 14The Imposto Geral Sobre Vendas e Serviços (IGV – sales tax), which has been in place since the 1990s, has demonstrated significant weaknesses, both in terms of its legal framework and administrative practice. Specifically, the IGV structure (tax incidence and exemptions) moved away from the harmonized tax model implemented in the region and was only applied to certain segments of the economy. Page 13 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) World Bank Global Tax Program Trust Fund to enhance DRM and reduce dependency on external sources of financing. In November 2024, the authorities launched a communications campaign for the roll out of the VAT, with its implementation effective since January 2025. A standard rate of 19 percent applies for most taxable supplies, 15 while a reduced rate of 10 percent is applied to essential commodities (for example, agricultural products, basic food, and certain cultural services). While it is too early to assess the impact of the roll out, preliminary data shows that revenue generated from the VAT on imports in January 2025 are 57 percent higher than those generated by the sale tax on imports in January 2024. The World Bank and IMF have been coordinating to provide continued support to the authorities for the implementation. Expected results 32. The implementation of the VAT, which began in January 2025, is expected to contribute to increasing tax collection over the medium-term. The VAT aims to overcome shortcomings of the sales tax and provide a modern tax system. It seeks to make collection more efficient, reduce administrative complexity, and avoid cumulative (“cascade”) effects common in simpler sales taxes. Supported by TA provided by the IMF and World Bank, this PA is expected to contribute to the overall increase in tax revenues from 8.7 percent of GDP in 2023 to 9.4 percent of GDP by 2026. More importantly, a preliminary IMF assessment (2022) suggests implementation of the VAT could raise revenues by 2.6 percent of GDP over a period of four years. This increased revenue will create additional fiscal space and support the country’s ability to sustain its social spending in areas such as education, health, and social protection (see Annex 3 for a detailed analysis of the poverty and social impacts of the reform). Prior Action #2. To support the centralization of fiscal resources and execution budget expenditures, the Recipient, through a Decree promulgated by the President, has approved the legal framework governing the structure and operational modalities of the Treasury Single Account, as evidenced by the Decree 01/2025, dated October 24, 2024, promulgated by the President on February 7, 2025, and published in the Official Gazette No.7 on February 17, 2025. Rationale 33. The GoGB does not currently have in place a fully functional Treasury Single Account (TSA), which can consolidate all budget resources, extra budgetary funds, internally generated funds, and donor funds. In the absence of a TSA, public institutions and public bodies have opened individual accounts—often without prior authorization from the Ministry of Finance—resulting in cash balances scattered across approximately 904 accounts in different commercial banks. Such practices have undermined government oversight of fiscal and non-fiscal revenues, cashflow forecasting and management, the consolidation of payments, as well as the timely execution of budget expenditures. In addition, the lack of a fully functional TSA can also incur a significant fiscal cost due to idle cash balances failing to earn market-related remuneration, unnecessary borrowing costs and commissions on raising funds to cover perceived cash shortages, difficulties in making payments in an accurate and timely manner, as well as related fiduciary risks, including fraud and corruption. Policy Content 34. The proposed reform will support the adoption of a Decree, promulgated by the President, which specifies the legal framework governing the structure and operational modalities of the TSA. This Decree will serve as the basis for an agreement with the BCEAO on the terms and conditions for the operation and management of the TSA. The Decree articulates, inter alia: (i) the structure of the TSA, including articles stipulating its definition, creation and opening of sub- accounts, domiciliation and management of the TSA and its sub-accounts, as well as the transmission of signatures of authorized persons; (ii) the scope of application and operation of the TSA, including articles stipulating the public bodies 15 All firms with a turnover above CFAF 40 million are subject to the standard VAT rate of 19 percent. Page 14 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) covered by the TSA, definitions of treasury correspondents, registration of funds, and the daily functioning of the TSA; (iii) the governance of bank accounts opened outside of the TSA, including articles stipulating exceptional cases whereby accounts can be opened outside the TSA, the management of requests to open and close bank accounts, the control of accounts, the closing unauthorized accounts, and the updating of account lists; as well as (iv) financial provisions, including articles stipulating the restructuring of existing accounts and the responsibilities of the TSA implementing actors. Expected Result 35. The proposed reforms under PA2 will support the government to increase its public expenditures executed through the TSA, including wage bill payments, increasing from 15 percent in June 2024 to 25 percent by December 2026. These results will benefit from TA under the Guinea-Bissau Public Sector Strengthening Project II (PSSP-II, P176383), including: (i) the development of an administrative, financial, operational, and accounting procedures manual for DGTCP; (ii) change management to address political economy challenges related to key institutional stakeholders; and (iii) the deployment of and Treasury Management dashboard for key treasury correspondents. This will be further supported by the signing of an agreement between the government and the BCEAO to govern the operational modalities of the TSA. PA2 is further supported through alignment with the structural benchmarks of the IMF’s ECF Program, including: (i) establishing an interface between the systems of the Treasury, BCEAO, and commercial banks and classify public bank accounts into those to be closed, maintained, or integrated into the TSA; and (ii) executing expenditure from the TSA, starting with the wage bill. Prior Action #3. To improve reporting and audit of fiscal resources, the Recipient, through the Minister of Finance, has issued a Ministerial Order to define the scope, responsibilities, and procedure to: (i) produce and publish semi-annual consolidated budget execution reports, fiscal and non-fiscal revenue reports, and treasury cashflow forecasts; as well as (ii) complete annual financial audits of these reports by the Court of Accounts, as evidenced by Ministerial Order (Despacho) No. 05/GMF/2025, dated February 7, 2025. Rationale 36. Fiscal reporting, transparency, and audit are weak in Guinea-Bissau. Currently, in-year budget execution reports are prepared but not published consistently, limiting their credibility. 16 While a Tableau des Opérations Financières de l'Etat (TOFE) that presents fiscal statistics is prepared following the WEAMU template, this information is not publicly available in a consistent manner and is updated with significant delays. Likewise, revenue and cash flow forecasting is limited, thus resulting in significant deviations from revenue forecasts. 17 Finally, the audit capacity of fiscal accounts is poor, as consolidated financial statements (Conta Geral do Estado) have not been submitted to Parliament or the Court of Accounts (Tribunal de Contas) since 2016, critical findings of audits are not followed up on a systematic basis. Due to these deficiencies in fiscal reporting and audit, Guinea-Bissau scores a “0” with respect to the Accessibility of Information according to the most recent 2024 Ibrahim Index of African Governance Indicators, and Freedom House’s 2024 Freedom in the World Report notes that the lack of fiscal transparency contributes to chronic budget shortfalls. Policy Content 37. The proposed reform will support the adoption of a Ministerial Order to improve the timely production and audit of key fiscal data. This includes: (i) consolidated budget execution reports; (ii) consolidated revenues reports, 16 Budget execution reports available online only for fiscal year 2021 as well as for the first semester of 2022 (published in January 2023). Budget credibility is undermined by large fluctuations in execution rates, which were 91.6 percent in 2019, to 87.4 percent in 2020, and 120 percent in 2021, and 147 percent in 2022. 17 A recent Debt Management Performance Assessment (DeMPA) scored Guinea‐Bissau a “D” concerning cash flow forecasting, noting deviations of over 12 percent between revenue forecasts and outruns as of end‐2021. Page 15 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) including both fiscal and non-fiscal revenues; 18 as well as (iii) treasury cash flow forecasts. The proposed reform defines the roles, responsibilities, and procedures to ensure the semi-annual publication of this data on the Ministry of Finance website by the relevant institutions, including among others, the COTADO and the Treasury Committee. 19 In addition, it establishes the requirement for financial audits by the Tribunal das Contas, ensuring that these reports are adequately verified on an annual basis. Improving these reporting and audit efforts is relevant for alignment with WAEMU directives and fiduciary oversight. The proposed reforms will also reinforce the IMF’s structural benchmarks under the current ECF Program, which includes requirements for commitments of all expenditure, except for the wage and debt service, to be approved by the COTADO and sent to the Treasury Committee on a monthly basis. Expected Results 38. The proposed reforms under this PA will support the government in improving the frequency of online publication of consolidated and audited fiscal reports, moving from the current ad hoc reporting to semi-annual by December 2026. These results will benefit from TA under the PSSP-II, including: (i) capacity building for institutions responsible for the production of reports on consolidated budget expenditures, revenues, and cash flow forecasts; (ii) capacity building in audit for the Court of Accounts; and (iii) the deployment of and Treasury Management dashboard for treasury correspondents for the use of Directorate General of the Treasury and Public Accounting (DGCPT). Taken together, these efforts will improve the overall fiduciary oversight environment (in line with other provisions noted below), which includes more transparent financial management practices, improved reporting on a timely basis, and external publication of audit report findings, thus reducing the risk for fraud, corruption, and diversion of funds for unintended purposes under the DPF. Prior Action #4. To improve integrity of civil servant payroll and pension data, the Recipient has issued an Interministerial Order (Despacho Conjunto) mandating the unique identification of all recipients of public salaries and pensions using biometric deduplication and issuance of associated unique identity credentials, as evidenced by the Interministerial Decree MAPRAEFPSS/MJDH/MF/2025 dated January 6, 2025. Rationale 39. A combination of mismanagement, political instability, and lack of capacity have resulted in notable inefficiencies in wage bill and pension management in Guinea-Bissau. In 2023, wage bill-related expenditures accounted for 41 percent of recurrent expenditure, 67 percent of total revenues, and 6.2 percent of GDP. The current pension system for the public sector accounted for 6.8 percent of overall expenditure in 2023, equating to approximately 10 percent of fiscal revenue, and a third (32.9 percent) of overall social sector spending. Data on both civil servants and public sector pensions is contained in the government’s payroll and pension database (SIGRHAP), which includes 25,161 pay and pension recipients across approximately 30 Ministries, Departments, and Agencies (MDAs). Based on a recent review of SIGRHAP, only about 2,600 (7.6 percent) of civil servants and pensioners have a registered ECOWAS-compliant unique identification number. 20 Without the uniform use of an ECOWAS-compliant national biometric identification card, it is impossible to guarantee that pay and pension recipients are real, living, and unique, potentially resulting in ghost workers, duplicates, or other payroll anomalies. 18 This includes revenues from the Tax and Customs administration as well as the Ministry of Fisheries, which constitute 98 percent of tax and non- tax revenues. 19 While these institutions have resumed regular meetings in January and February 2024, respectively, the functioning of these committees has been frequently suspended at numerous stages in the past due to political disturbances. 20 Currently, SIGRHAP includes three types of identification documents (e.g. manual/paper based, biometric since 2006, and ECOWAS-compliant biometric since 2018), which make it difficult to establish civil servant/pensioner uniqueness. Page 16 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Policy Content 40. The proposed reform will support the adoption of an Interministerial Decree developed by the Ministry of Justice in conjunction with the Ministries of Economy, Finance, and Public Administration, which would mandate that all recipients of public salaries and pensions obtain the ECOWAS-compliant national biometric identification card, which was adopted in 2018 as the official national ID card of Guinea-Bissau. Ensuring that all pay and pension recipients have a uniform biometric identification will lay the foundation for the government to record this ID number in SIGRHAP, which is a foundational step for carrying out subsequent civil servant and pensioner census to identify and address payroll anomalies. 21 Such measures have the potential for significant fiscal savings—in conjunction with other ongoing HR and wage bill rationalization reforms 22—thus supporting the efficiency of wage and pension expenditures. Expected Results 41. The proposed reforms will support the government in increasing the share of civil servants and pensioners with biometric identification included in the SIGRHAP database. (Baseline: 7.6 percent; Target: more than 90 percent). These results will benefit from TA under the PSSP-II (P-176383), including: (i) TA and financing for all pay and pension recipients to obtain a biometric ID; and (ii) a data collection and cleaning exercise (i.e. civil servant census) to identify anomalies. These efforts will also be supported by the IMF ECF program, including ongoing structural benchmarks supporting a multiannual staffing plan for 2023-2025 in line with program parameters and publishing by the Minister of Public Administration. This is a report with the results of the full census of public servants and the implementation of remedial actions on irregular cases. PILLAR B: ENHANCE ENERGY AND WATER UTILITY VIABILITY AND DIGITAL GROWTH Prior action #5. To ensure the effective management and deployment of the future national fiber optic backbone, the Recipient, through the Council of Ministers, has mandated, via a Decree, private sector management of the backbone along with the competitive selection criteria to be utilized, as evidenced by the Decree No. 06/2025, published in the Official Gazette No.10 on March 12, 2025. Rationale 42. Guinea-Bissau's economic development is significantly impeded by its limited digital connectivity, which particularly affects vulnerable groups. The country's broadband network is constrained by an underdeveloped legal and regulatory environment and insufficient private sector investment, resulting in low productivity, hindered economic growth, weak governance, and socio-economic exclusion, especially of women. The government is working on the approval of a new ICT Bill to replace the outdated ICT Fundamental Law 5/2010 to catch-up with the sector transformation over the past 15 years. It also stimulates innovation, whilst safeguarding consumer interests. Currently, accessibility, affordability, and usage of broadband internet are severely limited. These impacts are exacerbated by climate change, particularly the increased risk from storm surge and coastal floods affecting critical locations (e.g. cable landing areas) and access to emergency warnings particularly in rural areas. Prices of Information and Communication Technology (ICT) services in Guinea-Bissau are above the median of its regional peers, and users of mobile telecommunication services face higher prices than the global average. Addressing these issues requires competitively selected private sector management 21 Only the Electronic National identification (ENID) number would be captured in the SIGRHAP, and no specific biometric information would be retained nor interfaced with other databases in order to limit and minimize risks. To further ensure data privacy and protection, a legal covenant under the PSSP II stipulates that “the government shall ensure that the collection, use and processing (including transfers to third parties) of any Personal Data collected under this Project shall be done in accordance with the best international practice, ensuring legitimate, appropriate, and proportionate treatment of such data.” 22 This includes, inter alia, the development or establishment ceilings, updated organic structures, and related job descriptions. Page 17 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) of the future digital backbone to ensure a well-managed, open access network. Such changes will help overcome the challenges faced by the populations, especially in the rural areas, including access and affordability of internet services. These limitations hamper access to early warning systems (in case of floods or droughts), health services - particularly for women, and market prices – particularly by smallholders who cannot obtain daily pricing of cash crops, reducing their potential cash income. 23 43. Guinea-Bissau suffers from stark gender inequalities. Women face significant barriers in accessing means of production, goods, services, education, health, and training. They also encounter obstacles in economic inclusion, access to land and assets, and agricultural inputs and training. Women enjoy less than half of the legal rights of men, limiting their economic participation and entrepreneurship. They are also frequent victims of human rights violations, such as early and forced marriage. 44. Women in Guinea-Bissau face significant disparities in digital access compared to men. A 2022 Report for Guinea-Bissau finds that 60.7 percent of women own a mobile phone compared to 87.2 percent of men. 24 The proportion of youth and adults with ICT skills varies from 1.3 to 2.4 percent for women and from 1.5 to 13.0 percent for men (MICS, 2018). The multiple indicator survey indicates that 20 percent of men have access to media information compared to 5 percent of women. Deficiencies in digital and physical infrastructure limit internet traffic, access, and affordability, hampering market access, job opportunities, and efficiency, particularly for women. Currently, 37 percent of men have internet access compared to 13 percent of women. 45. One of the primary barriers women face in accessing the internet is the high cost of mobile services. The pricing of mobile services significantly impacts access, as many women cannot afford the high costs associated with internet usage. This economic barrier exacerbates the existing gender gap in digital access. Policy Content 46. The proposed reform will contribute to increasing coverage of the country’s network infrastructure and reducing the cost of a mobile-broadband basket. Modernizing the sector's legal and regulatory framework will spur innovation and reduce costs for consumers. In addition, modern energy efficient infrastructure and digital technologies (e.g., 4G systems from the current 2 or 3G systems), will reduce electricity use by at least 50-70 percent compared to present.25 It also stimulates innovation, whilst safeguarding consumer interests. Expanding the broadband connectivity is vital, especially to the rural and remote areas, which currently have very limited coverage. Such limitations affect the income of the rural population due to lack of access to market prices of major crops (for example, cashews), and warnings to longer-term weather patterns and climate-related disasters. The proposed reform is designed to attract and foster private sector investments and foster a competitive and innovative digital environment. 47. The proposed reform can also significantly address the gender gap by providing accessible, reliable, and affordable broadband internet, which is essential for an inclusive digital economy. Lowering internet access costs can bridge the digital divide, boosting women's economic and social participation. Affordable internet empowers women with digital skills, improving their access to essential services and economic opportunities, especially in e-commerce and mobile financial services. Expanding digital access also mitigates social exclusion, a major contributor to fragility. Improved connectivity enables women to participate in governance, access information, and integrate into the formal economy. Research indicates that broadband penetration increases GDP, and women's inclusion in the digital economy can drive 23 Source: World Bank Guinea-Bissau – Public Policy Notes 2023: Digital Development. 24 Source: https://mics.unicef.org/surveys?display=card&f[0]=region:3961 25 Deb, Priti & De, Debashis, 2022. Sustainable Spectrum Allocation Strategy for 5G Mobile Network. https://www.researchgate.net/figure/a-Comparison-of-power-consumption-in-the-3G-network-using-proposed-sustainable- green_fig7_360558891 Page 18 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) national growth. Therefore, making the internet more accessible is a vital step toward achieving gender equity and sustainable development. Expected Results 48. The proposed reform will support the government in ensuring the effective management and deployment of the national fiber optic backbone and contribute to increased coverage and access, and improved affordability of ICT services. This will result in improved market opportunities, with indirect but positive impacts on welfare of the people, especially those in rural areas. In conjunction with the deployment of the national fiber optic backbone (supported by the Digital Transformation for Africa/ Western Africa Regional Digital Integration Program, P176932), this reform will reduce the price of a data-only 2GB mobile-broadband basket from 9.8 percent of monthly GNI per capita in 2023 to 8.8 percent in 2026. This reform will increase the share of women with access to internet from 13 percent in 2019 to 25 percent by 2026. This reform will also improve service quality, attract private investment and enhance rural connectivity, ultimately leading to an open access network with more affordable services that would also contribute to reducing GHG emissions, enhancing the climate resilience of the population, especially in rural areas and in the event of a climate-related disaster. In addition, these improvements will foster a competitive and innovative digital environment that promotes private sector development. Prior Action #6. To improve the financial and operational performance of the national utility company, the Recipient: (i) through the Ministry of Finance, has signed a Performance Contract with Eletricidade e Águas da Guiné-Bissau (EAGB); and (ii) through a Ministerial Order from the Council of Ministers, has adopted and published new by-laws of the Administrative Council of EAGB, specifying the profiles, roles, and mandates of the board of directors, as evidenced by the Performance Contract between the Recipient and EAGB dated March 18, 2025, and Decree No. 8/2025, published in the Official Gazette No.11 on March 21, 2025. Rationale 49. Guinea-Bissau's electrification rate is approximately 33 percent, with urban areas at 55 percent and rural areas at only 15 percent. The limited grid coverage, extending only to Bissau and its outskirts, underscores the broader challenges faced by the national utility, EAGB. EAGB’s performance lags behind regional standards, necessitating urgent improvements in management and operational efficiency. Political interference in EAGB’s operations further exacerbates these issues. Additionally, irregular and limited payments from GoGB for energy consumption by public institutions poses significant financial challenges. 50. The performance contract aims to engage the government to remain committed and honor its obligations by making regular payments for the energy consumed by public institutions. It also seeks to grant EAGB the autonomy to operate without political intervention. The performance contract will set annual performance targets, including increasing access to electricity. The limitation of political interference will be further reinforced by the actualization of the company's status by establishing criteria for a stronger board of directors which includes the minimum qualification required to be a member. Policy Content 51. The proposed reforms aim to reduce political influence in the daily management of EAGB and establish realistic, quantifiable performance targets. These reforms are twofold: (i) a performance contract to be signed between EAGB, the Minister in charge of Energy, and the Minister in charge of Finances. This contract will clarify the roles and responsibilities necessary to achieve performance targets while ensuring the government pays its electricity bills; and (ii) updating the status of EAGB with new governance rules for its board. This includes promoting the selection of qualified members to a Page 19 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) steering committee who can independently execute their responsibilities, thereby minimizing governmental interference in the utility's operations. Expected Results 52. The implementation of the proposed reforms will reduce EAGB's operating deficit, strengthen its governance structure and management. In conjunction with the World Bank TA, this reform will reduce the operating deficit of EAGB from 50 percent of revenue in June 2024 to 40 percent of revenue in December 2026. The performance contract will set clear benchmarks for assessing EAGB's management and outline the GoGB's duties to facilitate these goals. The reforms will also ensure that a steering committee with qualified members will monitor these indicators to ensure that the utility's performance aligns with the set objectives, thereby limiting political interference and focusing on measurable outcomes. Prior Action #7. To reduce the high dependence on expensive imported oil and use of environmentally damaging hydrocarbon power generation, the Recipient has adopted a Decree promulgated by the President mandating the prioritization of the most cost-effective and environmentally sustainable energy sources for the national grid when multiple options are available, as evidenced by Decree No. 9/2025, published in the Official Gazette No. 11 on March 21, 2025. Rationale 53. Until recently, Guinea-Bissau's energy sector was predominantly powered by expensive and high-emission heavy fuel oil (HFO). Since August 23, 2024, Hydropower stations from Guinea, using OMVG transport lines, have been providing 100 percent of the country's energy. While the recent transition from HFO to hydropower has led to a significant reduction of energy generation cost, the impact on the financial situation of EAGB is yet to be seen. The Power Purchase Agreement (PPA) contract between Karpower and EAGB still represents a financial burden. EAGB and the GoGB are currently negotiating the conditions for the official termination of the PPA with Karpower. As of December 2022, EAGB faced an annual revenue-cost gap of approximately CFAF 11.6 billion, leading to increased debt facilitated by several letters of credit from local commercial banks. This debt level poses a significant macro-fiscal risk that extends beyond the energy sector, affecting the banking sector and the broader economy. The government's least cost production plan of 2020 envisions a future energy mix for Guinea Bissau that is predominantly renewable and from hydropower imports in the region. The plan would also reduce the risks of climate extremes, especially droughts, on hydropower generation; studies suggest that a severe drought - like the one that affected Guinea-Bissau in 2012 – could reduce hydropower generation by 50 percent. 26 Policy Content 54. The proposed reform prioritizes the share of renewable energy in the country’s energy mix and ensures Guinea- Bissau stays in line with the least-cost plan. The proposed reform aims to prevent Guinea Bissau from reverting to an energy mix predominantly dominated by fossil fuel resources. It will also ensure adherence with the least cost plan. A decree clearly stating the engagement of the government in prioritizing renewable energies in the energy mix is to be approved by the Council of Ministers. The reform supports the transition to green energy, including solar and wind, reduced reliance on hydropower and overall increase in efficiency of electricity generation in Guinea-Bissau. Such changes also reduce the adverse effects of climate change (such as increased risks from floods and droughts) and improve the climate resilience of the power generation. The reform along with the recent integration of the power grid into the regional electricity network provides access to renewable and more cost-efficient electricity through power trade. 27 Expected Results 26 Source: Trace, S. Impact of climate change on hydropower in Africa. Oxford Policy Management. 27 Source: World Bank- Guinea-Bissau Public Policy Notes 2023: Energy. Page 20 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) 55. The implementation of the proposed reform will contribute to reducing the cost of electricity and increasing the share of green energy. In conjunction with the World Bank TA, this PA and the nation's recent integration into the regional electricity network, will reduce the average cost of electricity from 24 cents US$/kWh (June 2024) to 18 cents US$/kWh (December 2026) and increase GW of renewable energy capacity enabled from 0 to 20 percent during the same period. This reform is also expected to encourage the growth of a green economy, reduce air pollution, improve health outcomes and the government's fiscal space for climate-resilient actions. Collectively, this would enhance the climate resilience of the people, especially the poor, and provide new opportunities for private sector involvement and investment. C. Consultations and Collaboration with Development Partners 56. The proposed reforms align with government priorities and policy dialogue that has taken place between the government, the development partners and civil society organizations (CSOs). Throughout the preparation of the operation, policy dialogue with the government has been constant, complemented by other World Bank sector engagements and operations. The government also responded to a World Bank request to set up a National Technical Committee to act as a direct technical focal point for the World Bank DPF team. Meetings were held on several occasions and were fruitful. The DPF also leverages other WBG analytical work, such as the SCD Update and RRA, which involved large scale consultations with CSOs and the private sector (with participation of two of the DPF task team leaders). Multiple rounds of consultations were held with the government at both the ministerial and technical levels. 57. The WBG worked with development partners in a six-member donor coordination group, which included the African Development Bank (AfDB), European Union, France, IMF, Portugal, Spain and the World Bank. This group was organized to enhance donor coordination for greater impact and to overcome problems with asymmetric information that are common in FCV contexts. The reform program supported by this DPF operation was discussed with partners to ensure complementarity and support in planned interventions. Both the AfDB and IMF included PFM and economic governance components in their budget support interventions, including implementing a TSA also supported through the IMF’s ECF. The European Union has an ongoing economic governance project and engages in this area, while Portugal offers significant TA in transparency and accountability. In addition, the AfDB had complementary energy sector projects, such as supporting the regional level OMVG hydroelectric energy project by constructing the ring around Bissau. IV. OTHER DESIGN AND APPRAISAL ISSUES A. Poverty and Social Impacts 58. The prior actions under Pillar A, aimed at enhancing PFM and supporting fiscal consolidation in Guinea-Bissau, would generate fiscal resources that could be directed towards investment in social sectors. The proposed reforms are expected to contribute to improve domestic resource mobilization, enhance the management of public funds, and generate fiscal resources that could be allocated to investments in social infrastructure, thereby strengthening the social contract and improving fiscal sustainability. The transition from the General Sales Tax (Imposto Geral sobre Vendas e Serviços, IGV) to a VAT (PA1) aims to broaden the tax base and increase revenue, thus creating fiscal space for social spending. While moderate short-term impacts on poverty are possible, the authorities have applied reduced rates to key goods (including food items) aimed at mitigating these impacts. Importantly, about 80 percent of households living in poverty in Guinea-Bissau rely on subsistence agriculture, consuming a basket of goods that is expected to be only marginally affected by the VAT (rural households allocate 57 percent of their consumption to food). The remaining prior actions in Pillar 1 are not anticipated to have significant effects on poverty and inequality, but are expected to help improve PFM and hence enhance robustness of the government’s finances. This robustness will minimize the long-term risks of Guinea-Bissau’s ability to sustain its social spending in areas such as education, health, and social protection. Page 21 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) 59. The prior actions under Pillar B, aimed at enhancing the efficiency of the telecommunications and energy sectors, are expected to support Guinea-Bissau in unlocking its productive potential, with positive impacts non- monetary welfare indicators and improving household income generation capacity. The proposed reforms to improve digital connectivity through better management and deployment of the fiber optic backbone and ICT law reform (PA5) will facilitate better access and quality to ICT services and could support the productive use of digital technologies and financial inclusion, such as mobile money, digital payments, and e-commerce, increasing the delivery and affordability of financial services. Reforms to improve the performance of the national utility company (PA6) and ensure sustainable electricity production (PA7), especially by prioritizing renewable cost-effective energy sources, could enhance the quality and reliability of electricity services. In the medium term, these reforms are anticipated to improve the operational efficiency of both sectors, enhancing the business environment and contributing to private sector-led growth (See Annex 3 for details). B. Environmental, Forests, and other Natural Resources Aspects 60. Policy actions under this proposed operation are not expected to have a significant negative impact on Guinea- Bissau’s environment, forests, and natural resources. The Ministerial Order for the prioritization of a more environmentally sustainable energy source (PA7) is expected to have positive effects as it promotes the transition from the current HFO polluting products to more renewable energy, which is less dependent on hydropower, and taps into the regional electricity grid. The deployment of the fiber optic backbone (PA5), could have potential negative, but reversible, effects on the environment and natural resources, including land clearance, noise pollution, solid waste generation. However, the requirements and procedures in Guinea-Bissau’s environmental legislation, and the environmental and social impact assessment 28 would minimize such risks and outcomes and mitigate the potential impacts of the expansion of ICT infrastructure. C. PFM, Disbursement, and Auditing aspects 61. Guinea-Bissau has been working on implementing PFM reforms to improve the transparency, efficiency, and accountability of its financial management systems. The 2014 Public Expenditure and Financial Accountability (PEFA) assessment indicates that Guinea-Bissau's PFM systems require significant improvements. The country scored poorly in several key areas, highlighting weaknesses in budget credibility, revenue management, expenditure management, and oversight functions. The assessment revealed significant deviations between planned and actual budget execution, indicating weak budget credibility. Revenue collection was hampered by inefficiencies and weak enforcement mechanisms, leading to revenue shortfalls. Expenditure management was characterized by weak controls, inadequate procurement practices, and significant arrears. The assessment identified weaknesses in internal controls, external audit, and legislative scrutiny of public finances. 62. The only improvements noted were in pillars I, 3, and 4 aspects covering aggregate expenditure outturn-rated C (PI-1). Composition of expenditure outturn where the average amount of expenditure actually charged to the contingency vote over the last three years was rated A (PI-2.1); and aggregate revenue outturn compared to original approved budget also rated as A (PI-3). Guinea-Bissau is in the process of implementing reforms to improve its PFM, including: (i) the reactivation of the Treasury Committee to monitor the execution of revenues and expenditure outturns against annual budget forecasts; (ii) a Ministerial order defining clear criteria for prioritization of cash payments by 28 Guinea-Bissau Law No. 1/2011 is the Basic Legislation on Environment, and provides controls for construction and infrastructure activities. In addition, under this legislation, the Environmental and Social Impact Assessment processes would be applicable for construction activities. The procedures include identifying the potential significant and adverse impacts of construction activities on the environment and propose solutions that to mitigate these outcomes. Source: FAOLEX Database accessed from Food and Agriculture Organizations website: https://www.fao.org/faolex/results/details/en/c/LEX-FAOC118164/ and LEX-FAOC181209/ Page 22 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) expenditure category to avoid arrears; (iii) the implementation of a TSA (with the support of the World Bank). Planning, however, caters to short-term political priorities. Budget credibility is weak, creating further opportunities for mismanagement. 63. The government has faced significant challenges to ensure transparency and accountability in public spending, with the exception of public sector wages. Weak tax administration and widespread tax evasion have limited the government's ability to generate sufficient revenue. Internal controls are weak, and expenditure control is worsened by the absence of a TSA which also leads to poor cash forecasting. Despite the clearance of arrears accumulated over 2019- 20 in 2021, the stock of legacy arrears and the buildup of new arrears related to poor expenditure control remains a challenge. The impact of these noted weaknesses may lead to inefficient use of resources, with funds being allocated to low-priority areas or wasted due to corruption. Since these weaknesses persist, they have necessitated the inclusion of strategic mitigation measures in this operation's design and corresponding risk mitigation strategies. 64. Fiscal transparency: The country has made little progress in the area of fiscal transparency in most areas of public spending. However, it has made commendable progress in improving fiscal transparency in public sector wages, especially with the use of blockchain technology. In May 2024, Guinea-Bissau launched a blockchain platform to manage its public wage bill. This system has provided a secure and transparent digital ledger for salary and pension data, enabling real-time monitoring and reducing the risk of fraud. The blockchain platform has increased accountability and reduced perceptions of public corruption by making wage bill management more transparent. These efforts are expected to enhance governance, reduce corruption, and promote sustainable economic development. 65. Foreign Exchange Control Environment risk, in maintaining overall adequate operational control over its exchange reserve management, at the BCEAO is assessed as Substantial. The control environment for Foreign Exchange in Guinea-Bissau faces weaknesses, with the country needing to maintain adequate operational control over the management of its exchange reserves at the BCEAO. The BCEAO has been audited regularly by internationally recognized audit firms and received satisfactory audit reports. In particular, the 2018 audit of BCEAO’s consolidated financial statements was conducted by an international audit firm, which issued an unmodified opinion on the financial statements. Financial statements are not prepared following International Financial Reporting Standards (IFRS) but rather internal accounting and reporting procedures issued by WAEMU. The audit was conducted in accordance with International Standards on Auditing. The latest IMF BCEAO Safeguard assessment is not publicly available and therefore difficult to discern the foreign exchange control environment. The latest BCEAO audit report and management letter are not available. 66. Alternative mitigative arrangements that will ensure the government’s timely receipt of the funds have been proposed to ensure DPF funds reach the budget as described below. 67. The credit will follow IDA’s disbursement procedures for DPF. Once the financing agreement becomes effective, and upon receipt of a withdrawal application, and provided IDA is satisfied with the program being carried out by the government and with the appropriateness of the country’s macroeconomic policy framework, the proceeds of the Credit will be deposited by IDA into a dedicated account designated by the GB at the BCEAO, where they will form part of the country’s official foreign exchange reserves. The government will transfer and credit the local currency equivalent in the dedicated treasury account (at the Central Bank), which forms part of its budget resources using the prevailing exchange rate. The government may use the proceeds as follows: (a) make budgeted foreign currency payments (such as for imports, and other foreign currency payments such as debt service) directly from this foreign currency bank account; (b) transfer amounts from the foreign currency bank account to a local currency bank account of the government, which the government then will use to make payments for its budget expenditures; or (c) a combination of these approaches 68. As a due diligence measure, IDA will obtain confirmation from the government that : (i) the sum of the proceeds was received into a dedicated account of the government that is part of the country’s official foreign exchange reserves (including the date and the name/number of the government’s bank account in which the amount has been deposited); Page 23 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) and (ii) an equivalent amount has been accounted for in the country’s budget management system (including the Chart of Accounts name/account number, the date of transfer, and the exchange rate used). Confirmation will be expected within 30 days of disbursement. If the proceeds of the financing are used for ineligible purposes as defined in the current General Conditions applicable to DPFs, the World Bank will require the Recipient to promptly refund an equal amount to the World Bank. Amounts refunded to the World Bank upon such request shall be cancelled against the country’s IDA allocation for the period. 69. The World Bank will request for an external audit of the dedicated account into which DPF funds will be deposited based on terms of reference to be agreed. The objective of the audit of the dedicated account will be to enable the auditor to express a professional opinion on the Dedicated Account for the DPF at the end of each fiscal year, and on funds received and payments out of the Dedicated Account for the relevant accounting period. The auditor will also be responsible for forming and expressing opinions on the Summary of Transactions of the Dedicated Account and confirmation that the Dedicated Account was used only for the purposes of the operation (i.e., no other amounts are deposited into this account); and confirm that all payments made from the Dedicated Account were for the government’s budgeted local currency expenditures. This audit will be done by an independent auditor acceptable to World Bank, and the audit report shall be submitted to the World Bank within six months after the deposit. 70. Overall fiduciary risk rating is high. The PFM system has fundamental weaknesses in budget management and execution as described. The TSA is not fully functional. The forex control environment is not fully known given the non- availability of the latest safeguard assessment, the 2023 audit report and the accompanying management letter. Fiscal transparency is weak where the 2023 Open Budget Index ranks the country 117 out of 125; and there is no Parliament to provide oversight on public finance. 71. In light of the PFM weaknesses and unavailability of the latest IMF Safeguard assessment, several risk mitigation measures are proposed. The mitigation measures are complementary and should be considered holistically. The measures already undertaken include: (i) reactivation of a Treasury committee and (ii) implementation of the Guinea-Bissau Public Sector Strengthening Project II (PSSP-II, P176383) where TSA reform is key. Actions being implemented under the IMF ECF include: (i) submission of quarterly government-wide expenditure reports to the Prime Minister; (ii) reactivation of COTADO, the central institution for expenditure control, which resumed its activities and has been addressing discretionary expenditure since 2023; and (iii) enhancement of measures against money laundering and financing of terrorism. Under this program, the GoGB will: (a) establish a dedicated foreign currency bank account at BCEAO or another commercial bank acceptable to the World Bank, to be used exclusively for the DPF grant proceeds; and (b) provide confirmation to the World Bank within 30 days after grant disbursement that the DPF proceeds were received into a government account that is part of the country’s foreign exchange reserves. Additionally, to ensure satisfactory fiduciary arrangements and mitigate potential weaknesses in the Central Bank’s control environment and budget management system, the World Bank will request an audit of the dedicated accounts and/or to agree with the government on a viable action plan to deal with the identified weaknesses. A more detailed assessment is presented in Annex 3. D. Monitoring, Evaluation, and Accountability 72. The Minister of Finance is responsible for the overall implementation and progress reporting of the DPF. To facilitate this, the Ministry of Finance established the National Technical Committee, which comprises representatives from all DPF sectors and serves as the technical counterpart to promote and monitor the reforms. The World Bank will review the conditions for effectiveness and disbursement. 73. Moreover, engaging through ongoing projects in the reforms areas facilitates regular monitoring of the operation, leveraging existing monitoring frameworks and planned enhancements. The WBG is focusing on enhancing portfolio performance in Guinea-Bissau by building capacity and improving monitoring systems to boost disbursements Page 24 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) and project implementation. To improve performance, the World Bank is providing Hands-On Expanded Implementation Support (HEIS) for procurement and safeguards, benefiting portfolio operations. The World Bank will conduct monthly portfolio review meetings and semiannual Country Portfolio Performance Reviews to ensure consistent oversight and address implementation challenges. The CPF will continue to support the government through the Geo-Enabling Initiative for Monitoring and Supervision, reinforcing recipient ownership and enabling technical teams to contribute to monitoring efforts. 74. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as Prior Actions or tranche release conditions under a World Bank Development Policy Financing may submit complaints to the responsible country authorities, appropriate local/national grievance mechanisms, or the Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Project affected communities and individuals may submit their complaint to the Bank’s independent Accountability Mechanism (AM). The AM houses the Inspection Panel, which determines whether harm occurred, or could occur, as a result of Bank non-compliance with its policies and procedures, and the Dispute Resolution Service, which provides communities and borrowers with the opportunity to address complaints through dispute resolution. Complaints may be submitted at any time after concerns have been brought directly to the World Bank’s attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the Bank’s Accountability Mechanism, please visit https://accountability.worldbank.org. V. SUMMARY OF RISKS AND MITIGATION 75. Overall residual risks to achieving the PDO are high. Table 6 presents the residual risk ratings by category. The categories of Political and Governance, Macroeconomic, Sector Strategies and Policies, Institutional Capacity for Implementation and Sustainability, and Fiduciary are rated high risks to the achievement of the PDO. The categories of Stakeholders and Technical Design are rated substantial risks to the achievement of the PDO. A description of these risks and their respective mitigation measures is provided below. 76. Political and governance risks are rated high. Frequent government turnovers are a key feature of Guinea- Bissau’s political and institutional fragility, which has prevented the formation of stable and accountable institutions and has been detrimental to social development and economic growth. Political commitment remains critical to the effective implementation of reforms, including the recent roll out of the VAT. TA through IMF and World Bank program will be critical to mitigating risks associated with this reform. The operation is structured to ensure that the reforms fall within the exclusive mandate of the President or the government. 77. The macroeconomic residual risks are rated high and arise from external and domestic shocks, as well as potential fiscal policy slippages. The economy’s high reliance on the export of raw cashew makes it highly susceptible to commodity price and demand shocks which contribute to volatile terms-of-trade and in revenues. Persistently low revenue mobilization, frequent fiscal slippages linked to discretionary spending, and weaknesses in macroeconomic policy capacity limit the ability to respond to economic shocks, making risks inherently high. Reforms supported as prior actions in Pillar A of this operation and the authorities’ renewed commitment reforms set under the ongoing IMF ECF program contribute to mitigating macroeconomic risks, but residual risks remain high. 78. Technical design risks are rated as substantial. The implementation gap may arise due to complexities in the design, potential challenges in execution, or uncertainties in the environment in which this operation will be implemented. The mitigation measures include implementation support provided by the existing World Bank engagement, and support from other external partners. Page 25 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) 79. Institutional capacity for implementation and sustainability, and sector strategies and polices risks are rated as high due to underdeveloped public sector institutions. The limited availability of staff with the necessary technical qualifications and experience to drive the supported reforms exacerbates this issue. Consequently, poor performance or attrition among these key personnel can significantly hinder the pace and quality of reform implementation. This is particularly important in the case new initiatives, such as the case of the VAT roll-out, technical staff have benefitted from specialized training to support implementation. The risk mitigation measures include the proposed operation’s limited number of prior actions and implementation support provided by the existing World Bank engagement, and support from other external partners. 80. The fiduciary risks are high due to weak PFM systems, including procurement, accounting, and auditing. The lack of a Safeguard assessment exacerbates these risks. The mitigation measures include: (a) using dedicated accounts for funds; (b) potential audits by the World Bank; and (c) restrictions on fund use for items on the World Bank's negative list. High procurement risks stem from institutional weaknesses and non-competitive practices. Mitigation efforts involve certification of procurement officers from procuring entities, ARCP (Procurement Regulatory Agency) and DGCP (control body), revising the Procurement Code, and developing capacity building plans and procedural manuals for ARCP and DGCP with support from the World Bank and the AfDB. At institutional level, actions aimed at providing ARCP with more autonomy and capacity are underway, such as the capacity to collect a regulatory fee and part of the amount from the selling of bidding documents by procuring entities as a condition for opening of bids (a Ministerial Order – Despacho 144/GMEF/2023 dated 3 October 2023 – from the Minister of Economy and Finance has been issued). 81. Stakeholder risks are rated as substantial. The stakeholder cooperation and consensus across the country is weak, especially given the frequent changes in ministry positions and the presence of competing interests. The mitigation measures include wider consultative process as part of the existing World Bank engagement. Table 6: Summary Risk Ratings @#&OPS~Doctype~OPS^dynamics@padrisk#doctemplate Risk Categories Rating 1. Political and Governance  High 2. Macroeconomic  High 3. Sector Strategies and Policies  High 4. Technical Design of Project or Program  Substantial 5. Institutional Capacity for Implementation and Sustainability  High 6. Fiduciary  High 7. Environment and Social  Moderate 8. Stakeholders  Substantial 9. Other  Overall  High Page 26 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing(P500567) ANNEX 1. Policy and Result Framework Prior actions and Triggers Results Prior Actions Indicator Name Baseline Target Pillar A--- Strengthen public financial management and domestic resource mobilization Prior Action #1. To improve domestic revenue mobilization and enhance the efficiency, accuracy, and compliance of tax administration processes, the Recipient, through the Ministry of Finance, Results Indicator #1: Tax 8.7 percent 9.4 percent has issued a Ministerial Order to create the necessary operational framework to implement the revenue as a percentage of VAT Law (Law 04/2022), including, conditions to: (i) migrate credit balances on the sales tax to (Dec-2023) (Dec-2026) GDP (percentage). VAT; and (ii) develop VAT declarations, as evidenced by Ministerial Order (Despacho) No. 95/GMF/2024, dated August 2, 2024. Prior Action #2. To support the centralization of fiscal resources and execution budget Results Indicator #2: Share of expenditures, the Recipient, through a Decree promulgated by the President, has approved the public expenditures executed 15 percent 25 percent legal framework governing the structure and operational modalities of the Treasury Single through the TSA, including Account, as evidenced by the Decree 01/2025, dated October 24, 2024, promulgated by the (June 2024) (Dec-2026) wage bill payments President on February 7, 2025, and published in the Official Gazette No.7 on February 17, 2025. (percentage). Prior Action #3. To improve reporting and audit of fiscal resources, the Recipient, through the Minister of Finance, has issued a Ministerial Order to define the scope, responsibilities, and Results Indicator #3: The procedure to: (i) produce and publish semi-annual consolidated budget execution reports, fiscal frequency the of online Ad hoc Semi-annual and non-fiscal revenue reports, and treasury cashflow forecasts; as well as (ii) complete annual publication of consolidated (June 2024) (Dec-2026) financial audits of these reports by the Court of Accounts, as evidenced by Ministerial Order and audited fiscal reports. (Despacho) No. 05/GMF/2025, dated February 7, 2025. Prior Action #4. To improve integrity of civil servant payroll and pension data, the Recipient has Results Indicator #4: Share of issued an Interministerial Order (Despacho Conjunto) mandating the unique identification of all civil servants and pensioners with biometric identification 7.6 percent >90 percent recipients of public salaries and pensions using biometric deduplication and issuance of associated included in the SIGRHAP (June 2024) (Dec-2026) unique identity credentials, as evidenced by the Interministerial Decree MAPRAEFPSS/MJDH/MF/2025 dated January 6, 2025. database (percentage). Page 27 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing(P500567) Prior actions and Triggers Results Pillar B--- Enhance energy and water utility viability and digital growth Results Indicator #5a: Price of a data-only 2GB mobile- 9.8 percent 8.8 percent Prior Action #5. To ensure the effective management and deployment of the future national fiber (Dec-2023) (Dec-2026) broadband basket (% of optic backbone, the Recipient, through the Council of Ministers, has mandated, via a Decree, monthly GNI per capita). private sector management of the backbone along with the competitive selection criteria to be utilized, as evidenced by the Decree No. 06/2025, published in the Official Gazette No.10 on March 12, 2025. Results Indicator #5b: Share of 13 percent 25 percent women with access to (Dec-2019) (Dec-2026) internet (percentage). Results Indicator #6: Prior Action #6. To improve the financial and operational performance of the national utility Operating deficit of the company, the Recipient: (i) through the Ministry of Finance, has signed a Performance Contract national utility with Eletricidade e Águas da Guiné-Bissau (EAGB); and (ii) through a Ministerial Order from the company Electricity and 50 percent 40 percent Council of Ministers, has adopted and published new by-laws of the Administrative Council of Water of Guinea-Bissau EAGB, specifying the profiles, roles, and mandates of the board of directors, as evidenced by the (June 2024) (Dec-2026) (EAGB) as a percentage of Performance Contract between the Recipient and EAGB dated March 18, 2025, and Decree No. revenue. (percentage) 8/2025, published in the Official Gazette No.11 on March 21, 2025. Prior Action #7. To reduce the high dependence on expensive imported oil and use of Results Indicator #7a: Average 24 cents 18 cents environmentally damaging hydrocarbon power generation, the Recipient has adopted a Decree cost of electricity per kWh. US$/kWh (June US$/kWh (Dec- promulgated by the President mandating the prioritization of the most cost-effective and 2024) 2026) environmentally sustainable energy sources for the national grid when multiple options are Results Indicator #7b: GW of available, as evidenced by Decree No. 9/2025, published in the Official Gazette No. 11 on March renewable energy capacity 21, 2025. enabled (Gigawatt). 0 (June 2024) 20 (Dec-2026) Page 28 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) ANNEX 2. Paris Alignment Assessment Program Development Objective: The program development objectives are to: (i) strengthen public financial management and domestic resource mobilization; and (ii) enhance energy and water utility viability and digital growth. Step 1. Is this operation consistent with This operation is consistent with the country’s climate commitments the country climate commitments, reflected in its 2021 updated NDC on both mitigation and adaptation goals, including for instance, the NDC, NAP, particularly on scaling up the renewable energy generation. The operation LTES, and other relevant strategies? has also taken into consideration Guinea Bissau’s NDP and the CCDR. Mitigation goals: assessing and reducing the risks Pillar A: Strengthen Public Financial Management and Domestic Resource Mobilization [PA #1, PA #2, PA #3, PA #4] Step M2.1: Is the prior action likely to Answer: No cause a significant increase in GHG Explanation: The PAs under this Pillar: establish operational structure to emissions? implement the VAT law; approval of structure and procedures for a fully functional Single Treasury Account; specify requirements for more transparency on fiscal and public resources and the preparation of audits; and the needs for all civil-servants and pensioners to have formal identification. They are not expected to cause a significant increase in GHG emissions. Conclusion for PA1, PA2, PA3 and PA4: ALIGNED Pillar B: Enhance Energy and Water Utility Viability and Digital Growth [PA #5, PA #6, PA #7] Step M2.1: Is the prior action likely to Answer: No cause a significant increase in GHG Explanation: The PA5 and PA6 under this Pillar support the creation of an emissions? enabling environment for the deployment of the fiber optic backbone and place contractual engagement of EAGB for a better performance and develop new internal regulations and are not likely to lead to a significant increase in GHG emissions; PA5 is likely to decrease GHG emissions due to the deployment of modern less energy intensive technologies and infrastructure; PA7 support the prioritization of more environmentally sustainable sources of energy, is deemed to be at low risk of contributing to increase in GHG emissions. However, given the results from TA and government’s ambition to reduce emissions and decrease hydropower as well fossil-fuel, it is most likely to lead to decrease in GHG emissions. Conclusion for PA5, PA6 and PA7: ALIGNED Mitigation goals: All prior actions of the proposed IN THE DPF program are aligned with the mitigation goals of the Paris Agreement. Adaptation criteria: assessment of physical climate risks Pillar A: Strengthen Public Financial Management and Domestic Resource Mobilization [PA #1, PA #2, PA #3, PA #4] Step A2: Are risks from climate hazards Answer: No likely to have an adverse effect on the Explanation: Risks from climate hazards are not expected to have an prior action’s contribution to the adverse effect on the contribution of any of the PAs in this Pillar towards Development Objective(s)? Page 29 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) the Development Objectives as they are designed to contribute to strengthening PFM and DRM. Conclusion for PA1, PA2, PA3 and PA4: ALIGNED Pillar B: Enhance Energy and Water Utility Viability and Digital Growth [PA #5, PA #6, PA #7] Step A2: Are risks from climate hazards Answer: No likely to have an adverse effect on the Explanation: Risks from climate hazards are not expected to have an prior action’s contribution to the adverse effect on the contribution of any of the PAs in this Pillar towards Development Objective(s)? Development Objectives as they are designed to enhance energy utility viability and digital growth. Less dependence on hydropower under PA7 is likely to reduce the risks of climate hazards (e.g. floods and droughts) which affect the country’s water resources and thus hydropower generation. Conclusion for PA5, PA6 and PA7: ALIGNED Adaptation and resilience: All prior actions of the proposed DPF program are aligned with the adaptation and resilience goals of the Paris Agreement. PA5 and PA7 are expected to contribute to enhancing the financial adaptive capacity and climate resilience of people due to cost-savings from electricity and digital connectivity. PA7 is also likely to improve health outcomes due to reduction in pollution from decreased use of fossil fuels. PA5 is likely to expand the areas of transmission of emergency warnings in the event of climate related disaster thus improving climate resilience of people. Finally due to reduce expenditure of fossil fuel subsidy and connectivity, the government is likely to have improved fiscal space for climate resilience actions benefiting the economy, environment and society. OVERALL CONCLUSION OF PARIS ALIGNMENT ASSESSMENT: This operation is aligned with the goals of the Paris Agreement. Page 30 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) ANNEX 3. Operation Specific Annex Environment and Poverty/Social Analysis Table Significant poverty, social or Significant positive or negative Prior Actions distributional effects positive or environment effects negative Operation Pillar A: Strengthen public financial management and domestic resource mobilization Prior action #1 No effect Yes, mixed. Prior action #2 No effect No significant direct effects. Prior action #3 No effect No significant direct effects. Prior action #4 No effect No significant direct effects. Operation Pillar B: Enhance energy and water utility viability and digital growth Prior action #5 Yes, potential negative effect Yes, positive indirect effects. Prior action #6 No effect Yes, positive indirect effects. Prior action #7 Yes, positive effect No significant direct effects. Page 31 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Detailed Poverty and Social Analysis Pillar A. Strengthen public financial management and domestic revenue mobilization Prior Action #1. To improve domestic revenue mobilization and enhance the efficiency, accuracy, and compliance of tax administration processes, the Recipient, through the Ministry of Finance, has issued a Ministerial Order to create the necessary operational framework to implement the VAT Law (Law 04/2022), including, conditions to: (i) migrate credit balances on the sales tax to VAT; and (ii) develop VAT declarations, as evidenced by Ministerial Order (Despacho) No. 95/GMF/2024, dated August 2, 2024. PA1 is expected to have mild impacts on poverty given the composition of the basket consumed by poor households and high consumption informality, with potential to enhance revenues for social spending. The transition in Guinea- Bissau from the General Sales Tax (Imposto Geral sobre Vendas e Serviços, IGV) 29 system to a VAT 30 is expected to broaden the tax base by eliminating various exemptions and preferential rates, with the potential to increase tax revenues by 2.6 percent of GDP over the medium-term (IMF, 2022). This revenue increase would create additional fiscal space, and hence support the country’s ability to sustain its social spending in areas such as education, health, and social protection, further enhancing the social contract and contribute to reduce fragility. While at face value the implementation of a new tax could raise considerations regarding poverty impart, it is important to note that the consumption basket of the most vulnerable population would fall outside the coverage of VAT on formal transactions (as food expenditure represents about 54 percent of total consumption for the bottom half of the population, Figure 1). Similarly, about 80 percent of households living in poverty in Guinea-Bissau rely on subsistence agriculture, consuming a basket of goods that is expected to be only marginally affected by the VAT (rural households allocate 57 percent of their consumption to food, Figure 2). Moreover, welfare impacts are expected to be mitigated further but the application of a reduced rate on essential goods such as certain agricultural essentials and food items. More broadly, as part of its broader country engagement, the WBG will carry out a fiscal incidence analysis in FY26/27 that could further inform fiscal policy design to mitigate its impact on more vulnerable households. Figure 1. Average Consumption and Share of Food Figure 2. Share of Food in Total Consumption 0.6 1000000 0.8 Urban Rural Food share in consumption 800000 Food share in consupmtion Consupmtion per capita 0.5 0.6 600000 0.4 0.4 400000 0.3 200000 0.2 0.2 0 D1 D2 D3 D4 D5 D6 D7 D8 D9 D10 0 Consumption decile Share of Food in Total Consumption D1 D2 D3 D4 D5 D6 D7 D8 D9 D10 Average Consumption per Capita Consumption decile Source: World Bank estimates based on EHCVM (2021/22). Note: Consumption deciles for Guinea-Bissau, urban and rural areas were estimated independently. 29 The Imposto Geral Sobre Vendas e Servicos (IGV, a general sales tax), which has been in place since the 1990s, has demonstrated significant weaknesses, both in terms of its legal framework and administrative practice. Specifically, the IGV structure (tax incidence and exemptions) moved away from the harmonized tax model implemented in the region and was only applied to certain segments of the economy. 30 Parliament approved a new VAT Bill (Law 04/2022). Page 32 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) At the same time, this PA1 would have mixed impacts on equity. According to the IMF (2022), the new VAT system would maintain exemptions and preferential rates on goods and services that are disproportionately consumed by higher-income households, such as IT equipment, publications, entertainment services, hotels, restaurants, and legal services. This could exacerbate existing inequalities and make the system regressive. For example, maintaining preferential rates on computer equipment and publications benefits higher-income individuals who consume these goods. To mitigate the potential negative distributional impacts of transitioning from a the IGV to the VAT, the government could consider strategies such as targeted support measures for vulnerable households like cash transfers. Prior Action #2. To support the centralization of fiscal resources and execution budget expenditures, the Recipient, through a Decree promulgated by the President, has approved the legal framework governing the structure and operational modalities of the Treasury Single Account, as evidenced by the Decree 01/2025, dated October 24, 2024, promulgated by the President on February 7, 2025, and published in the Official Gazette No.7 on February 17, 2025. The implementation of a TSA promoted by PA2 is not expected to have significant direct effects on poverty but has the potential to release budget resources that could be used to support development initiatives in the country and could help to increase investor confidence and reduce fiscal risks. The TSA promoted by PA2 aims to consolidate government funds into one account, thereby enhancing fiscal oversight and the management of public resources (Yaker & Pattanayak, 2011). The consolidation process facilitates the reduction of idle cash balances and the lowering of borrowing costs. Consequently, resources are freed and can be reallocated to essential public services such as healthcare, education, and infrastructure development. Similarly, this policy is expected to help streamline spending, manage the wage bill, and enhance cash management (World Bank, 2024). By centralizing all government funds into a single account, the TSA can enhance the efficiency and transparency of PFM. Improved allocation of resources can lead to better service delivery, which disproportionately benefits the poor and vulnerable groups who rely on public services. At the same time, the transition to a TSA system requires robust institutional capacity and coordination among various government agencies, which might be challenging in a context like Guinea-Bissau, characterized by limited administrative capacity and political instability. Prior Action #3. To improve reporting and audit of fiscal resources, the Recipient, through the Minister of Finance, has issued a Ministerial Order to define the scope, responsibilities, and procedure to: (i) produce and publish semi-annual consolidated budget execution reports, fiscal and non-fiscal revenue reports, and treasury cashflow forecasts; as well as (ii) complete annual financial audits of these reports by the Court of Accounts, as evidenced by Ministerial Order (Despacho) No. 05/GMF/2025, dated February 7, 2025. Improving oversight and transparency in the allocation of public resources can result in more efficient use of public funds, although it may not have a direct effect on poverty and inequality. Enhancing the transparency and accountability in the execution of the public budget through the publication of audited semiannual reports, will support a more efficient use of funds, improving the prioritization process of spending, and maximizing savings. These savings could in turn be allocated to goods and services where there exists a financing gap, such as electricity infrastructure, which could in turn promote poverty reduction and shared prosperity in the medium term. For instance, the World Bank (2014) finds that 18.3 percent of the annual infrastructure investment gap could be financed from savings produced by better governance. In addition, improved transparency can also enable a greater business environment, improving investor confidence, and attracting much needed foreign capital (Gelos & Wei, 2002). Page 33 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Prior Action #4. To improve integrity of civil servant payroll and pension data, the Recipient has issued an Interministerial Order (Despacho Conjunto) mandating the unique identification of all recipients of public salaries and pensions using biometric deduplication and issuance of associated unique identity credentials, as evidenced by the Interministerial Decree MAPRAEFPSS/MJDH/MF/2025 dated January 6, 2025. The reforms proposed by PA4 are not expected to have a significant impact on welfare. However, they may support the creation of fiscal space by rationalizing the public sector wage bill and pension expenditures. This is important for enhancing Guinea-Bissau's fiscal stability and to allow financing expenditures in education, health, and infrastructure, thereby promoting sustainable and equitable development. Over the 2011 to 2021 period, the wage bill in Guinea-Bissau averaged 20.5 percent of GDP, above its peers. Wages and salaries account for over 40 percent of recurrent spending, thus constraining resource allocation for essential public services and social investments. In addition, the public sector pension scheme is characterized by generous benefits and a lack of proper funding mechanisms, as pensions are paid out of general revenues, creating a large funding gap (World Bank, 2022). At the same time, the World Bank (2022) identified the lack of a foundational identification system as an important challenge for rationalizing the wage bill and pension expenditures in Guinea-Bissau. A significant number of civil servants and pensioners lack an ECOWAS-compliant biometric national ID registered in the payroll and pension registry (SIGRHAP). 31 This information is relevant to confirm the uniqueness of civil servants and pensioners, identify payroll irregularities such as ghost workers and duplicates, and facilitating the government's ability to conduct an accurate census of its workforce and pensioners. Pillar B. Enhance energy and water utility viability and digital growth Prior Action #5: To ensure the effective management and deployment of the future national fiber optic backbone, the Recipient, through the Council of Ministers, has mandated, via a Decree, private sector management of the backbone along with the competitive selection criteria to be utilized, as evidenced by the Decree No. 06/2025, published in the Official Gazette No.10 on March 12, 2025. The policies promoted by PA5 aim at supporting an effective management and deployment of the national fiber optic backbone, contributing to increase access and affordability of ICT services, and translating into market opportunities, with indirect but positive impacts on welfare. These changes are expected to support the connectivity development in the country (the connectivity index for Guinea-Bissau was 32.1 in 2023, placing it as the 12th country with the lowest score among 173 countries 32), which still faces significant challenges. Similarly, prices of ICT services in Guinea-Bissau are above the median of its regional peers, and users of mobile telecommunication services face higher prices than the global average (Figure 3). In 2021, the price of mobile broadband data-only corresponded to 8.45 percent of the GNI per capita, above the world’s average of 1.25 percent and the international affordability target of 2 percent by 2025 33, suggesting that the country needs to decrease relative prices to make the access to ICT affordable for all. 31 Currently, SIGRHAP includes three types of identification documents for civil servants and pensioners (e.g. manual/paper based, biometric since 2006, and ECOWAS-compliant biometric since 2018), which make it difficult to establish civil servant/pensioner uniqueness as well as to ensure de- duplication in any subsequent census exercise. Likewise, only 71.9 percent of pensioners have a recorded birthdate suggesting that there is ample need for the ECOWAS-complaint ID to be extended to pension recipients as well. 32 GSMA Mobile Connectivity Index 2023. The index measures, annually, the performance of countries in four dimensions of mobile internet adoption: infrastructure, affordability, consumer readiness, and content and services. Available at: https://www.mobileconnectivityindex.com/index.html#year=2023 33 This target was set by the ITU/UNESCO Broadband Commission for Sustainable Development in 2018, to make entry-level broadband services affordable in developing countries by 2025. Page 34 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) Figure 3. Cost of data-only mobile broadband - WAEMU and regional LMICs, 2021 20 Percent of GNI per capita 15.34 15 11.37 10.08 10.46 10 8.45 6.53 5 2.33 2.58 2.87 3.12 2 0 NGA GHA CIV SEN KEN BEN GNB MLI BFA TGO NER Source: ITU ICT Price Baskets Database. Increased access to ICT services could contribute to improve labor market opportunities and access to digital financial services and mobile money. Improved access and affordability of ICT services in Africa lead to higher employment rates in the region, as well as to higher employment rates in skilled sectors (Hjort & Poulsen, 2019). Evidence also shows that the expansion of mobile internet in developing countries leads to increased labor market participation and employment rates, especially among women (Chiplunkar & Goldberg, 2022). In addition, increased access to ICT services could generate positive welfare effects through the higher access to mobile money accounts, particularly for rural areas. For instance, a recent study in Kenya shows that the use of mobile money can strengthen household resilience to shocks by enabling informal risk-sharing mechanisms (Yao B. , Shanoyan, Schwab, Amanor-Boadu, & Vincent, 2023). In addition, evidence from Côte d’Ivoire and Tanzania suggests that using mobile money to receive payments decrease transactions costs faced by agricultural households leading to a higher probability to participate in distant markets (Yao B. H., Shanoyan, Schwab, & Amanor-Boadu, 2022). Prior Action #6: To improve the financial and operational performance of the national utility company, the Recipient: (i) through the Ministry of Finance, has signed a Performance Contract with Eletricidade e Águas da Guiné-Bissau (EAGB); and (ii) through a Ministerial Order from the Council of Ministers, has adopted and published new by-laws of the Administrative Council of EAGB, specifying the profiles, roles, and mandates of the board of directors, as evidenced by the Performance Contract between the Recipient and EAGB dated March 18, 2025, and Decree No. 8/2025, published in the Official Gazette No.11 on March 21, 2025. Improving the management of the public electric company in Guinea-Bissau can help to enhance its operational efficiency, increasing access and affordability, boosting economic growth, and promoting social and gender equity. The electricity sector in Guinea-Bissau faces significant challenges, data from the recent household survey (EHCVM 2021/22) indicates that only 22.5 percent Bissau-Guineans have access to electricity (defined as direct connection the network). In addition, access is largely concentrated in the capital, Bissau, where over 70 percent of households are connected to the grid. Electricity is not only scarce but also very costly, placing Guinea-Bissau among the most expensive markets in the region. By improving management, blackouts and energy crises can be minimized, operational costs lowered, and electricity made more affordable for the general population. Blimpo and Cosgrove-Davies (2019) suggest that reforms aimed at enhancing energy access can significantly improve household welfare through four main mechanisms: (i) improved electricity reliability contributes to better health and education outcomes, potentially advancing gender equality; (ii) reliable electricity access fosters private sector growth and job creation by creating a more favorable business environment; (iii) enhanced financial viability enables investments that extend electricity services to remote regions and low-income households; and (iv) improved service provision strengthens the social contract between the government and its citizens. Moreover, previous operational improvements have shown significant cost reductions in the past, as evidenced by the drop from US$0.60 to US$0.42 per kWh (Benbarka, 2022). The efficiency gains in the operational performance of EAGB can fuel economic growth by bolstering sectors such as agriculture, fishing, and small industries (Benbarka, 2022), ultimately reducing the need for private generators. In addition, improved business competitiveness Page 35 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) and positive environmental impacts are also expected (World Bank, 2011). This enhanced access and affordability of electricity could create a more robust and equitable economy. Prior Action #7: To reduce the high dependence on expensive imported oil and use of environmentally damaging hydrocarbon power generation, the Recipient has adopted a Decree promulgated by the President mandating the prioritization of the most cost-effective and environmentally sustainable energy sources for the national grid when multiple options are available, as evidenced by Decree No. 9/2025, published in the Official Gazette No. 11 on March 21, 2025. While no direct effects on poverty are expected from PA7, transitioning away from costly imported oil and environmentally harmful hydrocarbon-based power generation toward more cost-effective and sustainable energy sources could have indirect but positive impacts on welfare. By stepping away from HFO, the reform would lower electricity costs, enhancing affordability for both households and businesses. Given that Guinea-Bissau has some of the highest electricity prices in West Africa, this shift could help to alleviate energy poverty and stimulate economic activity (World Bank, 2024). As detailed in Guinea-Bissau’s CCDR, high electricity prices (averaging approximately US$0.22 per kilowatt-hour, among the highest in West Africa) intensify energy poverty and disproportionately impact low-income households and small enterprises. A transition toward renewable energy sources, notably solar and hydropower, is expected to lower energy costs, thereby enhancing affordability and broadening access to electricity. This shift would likely improve productivity across key sectors, particularly in rural areas where access remains critically low at around 31 percent. However, complementary investments in grid infrastructure and institutional reforms will be necessary to ensure that cost savings are effectively passed on to consumers, including those dependent on inefficient, high-cost alternatives such as diesel generators. Furthermore, moving away from the use of imported oil for generation could also contribute to mitigate pollution, potentially improving health and promoting higher worker productivity (Oladosu & Rose, 2007) (Feng, et al., 2010). Similarly, promoting environmentally sustainable energy sources could contribute to promote productivity, as the evidence suggests that even at low levels of exposure to pollution there are significant negative effects on worker productivity (Zivin & Neidell, 2012). Evidence from Sub-Saharan Africa shows that there exists a negative association between firm performance and air pollution, as measured by the average level of exposure of a nation's population to concentrations of suspended particles measuring less than 2.5 microns in aerodynamic diameter (PM 2.5), at much lower levels than expected (PM2.5 of 30 µg/m3 and above). Page 36 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) References Detailed PFM, Disbursement and Auditing Aspects Guinea-Bissau has been working on implementing PFM reforms though with mixed results. Recurrent political instability has historically disrupted and hindered the effective implementation of PFM reforms. This instability has created difficulties in maintaining consistent fiscal policies and implementing long-term financial strategies. Weak governance and a lack of accountability have contributed to inefficiencies and potential misuse of public funds. There have been challenges in ensuring transparency and preventing corruption. The public sector faces limitations in skilled personnel and adequate resources, which hampers effective financial management. Weak revenue collection capacity and limitations in tax administration are also present. Budget allocation often lacks a clear strategic framework, leading to inefficient resource distribution. There are issues with budget execution and control. Public procurement faces challenges related to both regulatory and institutional arrangements, and prevalent use of noncompetitive methods. Guinea-Bissau has adopted WAEMU Directives on procurement as part of its Procurement Code but the translation of technical terms to Portuguese has made the application of some provisions difficult. Lack of technical capacity and guides (manuals) impedes compliance with regulations, and consequently, noncompetitive methods prevail. Adoption of WAEMU directives, means the country has also adopted institutional arrangements that separate the regulatory function (by ARCP) from the control function (DGCP). However, both entities are understaffed, underequipped and underqualified. Reforms in public procurement are currently ongoing with support from the World Bank (Public Sector Strengthening Project II, P176383) and the African Development Bank (Public Administration Management Support Project – PAGAP). These reforms include revision of the Procurement Code, implementation of a strategic training plan including the mainstreaming of climate change-related aspects in public procurement, training and certification of public procurement officials, and preparation of procedures manuals for ARCP and DGCP. Actions aimed at providing ARCP (the public procurement regulatory body) with more autonomy are ongoing, such as the capacity to collect a regulatory fee (a ministerial order – Despacho 144/GMEF/2023 dated 3 October 2023 – from the Minister of Economy and Finance has been issued). Ongoing reforms to improve the country’s PFM include: (i) reactivating the Treasury Committee to monitor the execution of revenues and expenditure outturns against annual budget forecasts; (ii) instituting a Ministerial order that defines the criteria for prioritization of cash payments by expenditure category to avoid arrears; (iii) implementing a Treasury Single Account (with the support of the World Bank); (iv) amending the legal framework governing procurement to enable collection and publication of beneficial ownership information of public procurement contracts; and (v) adopting an executive order to end hiring of employees without contracts-and achieve compliance with some of the WAEMU Commission directives to harmonize PFM systems. The government has also taken steps to establish an SOE Monitoring Unit and prepared a 2023 SOE report. In addition, as noted in the IMF’s 3rd Review under the Extended Credit Facility (November 2023), the government has committed to: (i) publication of the audit report of the High Commissioner for COVID-19 funds; (ii) publication of beneficial ownership information for all crisis-related contracts; and (iii) Implementation of measures to deter money laundering and financing of terrorism in line with the revised action plan based on the 2023 WAEMU Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Directive. Initiatives like the Public Administration and Finance Reform Program (PRAFP) are underway to strengthen fiscal sustainability and improve PFM control and transparency. These programs aim to enhance domestic revenue collection, improve public expenditure control, and strengthen public procurement. Page 37 The World Bank Guinea-Bissau Reform Advancement Development Policy Financing (P500567) The Ministry of Finance will be responsible for administering the DPF, preparing the withdrawal application, and maintaining the dedicated foreign currency and local currency bank accounts. With assistance from the BCEAO, the Ministry of Finance will maintain records of all transactions under the DPF in accordance with sound accounting practices and ensure the proceeds of the DPF are accounted for promptly in the budget management system using the country’s regular procedures for such accounting. The World Bank will also require the dedicated foreign exchange account be audited in accordance with terms of reference acceptable to the International Development Association (IDA). The audit report should be submitted to the World Bank within six months after the fiscal year ending (month)(year). Page 38 ANNEX 4. Required Accompanying Documentation Letter of Development Policy IMF Relations Note Bibliography Operational Support Prior Actions Bibliography Pillar A: Strengthen public financial management and domestic resource mobilization World Bank Group. 2022. Public Expenditure Review. Strengthening Guinea Bissau's Tax and IMF. 2022. República da Guiné-Bissau: Projeção de Receitas Fiscais Customs Administrations - P180941 PA #1 Após Implementação do Imposto Sobre o Valor Acresentado (Modernização do Imposto Geral Sobre Vendas) 2024 TSA Implementation Background Note 2024 Technical Guidance Note on Information Systems at the Ministry of Finance 2024 Guinea-Bissau Economic Update (Report: 190172) 2023 Systematic Country Diagnostic Update for Guinea-Bissau (Report: 185658) PA #2 2022 Public Expenditure Review for Guinea-Bissau (Report 184813) 2022 Guinea-Bissau Digital Economy Diagnostic (Report: 173038) 2021 Debt Management Performance Assessment (Report 171602) 2020 Guinea-Bissau Country Economic Memorandum (Report: AUS0001916) 2019 Guinea-Bissau Public Expenditure Review (Report: 133866) 2024 Treasury Directorate Diagnosis Action Plan 2024 Guinea-Bissau Economic Update (Report: 190172) 2023 Systematic Country Diagnostic Update for Guinea-Bissau (Report: 185658) 2022 Public Expenditure Review for Guinea-Bissau (Report 184813) PA #3 Guinea Bissau Public Sector Strengthening 2022 Guinea-Bissau Digital Economy Diagnostic (Report: 173038) 2021 Debt Management Performance Assessment (Report 171602) project II - P176383 2020 Guinea-Bissau Country Economic Memorandum (Report: AUS0001916) 2019 Guinea-Bissau Public Expenditure Review (Report: 133866) 2024 HRMIS Software Preparation Technical Guidance Note 2024 Civil Servant Census Background Note and Roadmap 2024 Guinea-Bissau Economic Update (Report: 190172) 2023 Systematic Country Diagnostic Update for Guinea-Bissau (Report: 185658) PA #4 2022 Public Expenditure Review for Guinea-Bissau (Report 184813) 2022 Guinea-Bissau Digital Economy Diagnostic (Report: 173038) 2021 Debt Management Performance Assessment (Report 171602) 2020 Guinea-Bissau Country Economic Memorandum (Report: AUS0001916) 2019 Guinea-Bissau Public Expenditure Review (Report: 133866) Pillar B: Enhance energy and water utility viability and digital growth World Bank Group. 2021. Digital Economy Country Assessment Digital Transformation for Africa/ Western Republic of Guinea-Bissau. 2021. Estratégia Nacional de Promoção Africa Regional Digital Integration Program do Alto Débito e Plano Operacional SOP1 (P176932). Republic of Guinea-Bissau. 2022. Estudo Relativo à Avaliação da PA #5 Reforma do Sector das Telecomunicação, à Revisão do Seu Quadro Jurídico e Regulatório e à Implementação do Quadro Jurídico da Sociedade da Informação Republic of Guinea-Bissau. 2024. Nota de Enquadramento: Backbone Nacional. Performance audit reports (7 reports) of the management contract under the PUASEE (Projet d’urgence pour l’Amelioration des services d’Eau potable et d’Electricité pour la ville de Bissau), between January 2020 to June 2023 PA #6 ECOWAS- Region Electricity Access Project A draft of the performance contract developed under PUASEE. energy project (P164044) Report on the internal regulations of EAGB board of directors (Mars Guinea-Bissau: Solar Energy Scale-up and 2023) prepared under the Project preparation advance of SESAP Access Project (P174576) (Solar Energy Scale-up and access project) Least Cost Production Plan (APR 2020) PA #7 Ongoing power purchase agreements (Karpower and EDG) References Benbarka, A. (2022). Project Information Document - Guinea-Bissau: Solar Energy Scale-up and Access Project - P174576. Washington, D.C.: World Bank Group. Blimpo, M. P., & Cosgrove-Davies, M. (2019). Electricity access in Sub-Saharan Africa: Uptake, reliability, and complementary factors for economic impact. Washington, D.C.: World Bank Publications. Chiplunkar, G., & Goldberg, P. K. (2022, December). The employment effects of mobile internet in developing countries. National Bureau of Economic Research. doi:10.3386/w30741 Feng, K., Hubacek, K., Guan, D., Contestabile, M., Minx, J., & Barrett, J. (2010, April 29). Distributional effects of climate change taxation: the case of the UK. Environmental Science & Technology, 44(10), 3670-3676. Retrieved from https://pubs.acs.org/doi/full/10.1021/es902974g Gelos, G., & Wei, S.-J. (2002). Transparency and international investor behavior. NBER. Retrieved from https://www.nber.org/papers/w9260 Hjort, J., & Poulsen, J. (2019). The arrival of fast internet and employment in Africa. American Economic Review, 109(3), 1032-1079. doi:10.1257/aer.20161385 IMF. (2022). Republic of Guinea-Bissau: Projection of Tax Revenues after Implementation of the Value Added Tax (Modernization of the General Sales Tax). Washington, D.C.: International Monetary Fund. Oladosu, G., & Rose, A. (2007). Income distribution impacts of climate change mitigation policy in the Susquehanna River Basin Economy. Energy economics, 29(3), 520-544. Retrieved from https://doi.org/10.1016/j.eneco.2005.09.012 World Bank. (2011). Guinea-Bissau - Electricity Sector Transformation Support Project (ESTSP). Washington, D.C.: World Bank. Retrieved from https://documentsinternal.worldbank.org/search/14879527 World Bank. (2014). Corporate governance of state-owned enterprises : a toolkit. Washington, D.C.: World Bank. Retrieved from https://documentsinternal.worldbank.org/search/20286791 World Bank. (2022). Public Expenditure Review for Guinea-Bissau: Creating Fiscal Space While Enhancing Public Expenditure in Health, Pensions, and Energy. Washington, D.C.: World Bank Group. Retrieved from https://documentsinternal.worldbank.org/search/34157616 World Bank. (2024). Guinea-Bissau Country Climate and Development Report (CCDR). Washington, D.C.: World Bank. World Bank. (2024). Guinea-Bissau Economic Update Spring 2024 - Retiring the Fiscal Risk. Washington, D.C.: World Bank Group. Retrieved from https://documentsinternal.worldbank.org/search/34328882 Yaker, I. F., & Pattanayak, S. (2011). Treasury single account: an essential tool for government cash management. Washington, D.C.: International Monetary Fund. Yao, B. H., Shanoyan, A., Schwab, B., & Amanor-Boadu, V. (2022). Mobile money, transaction costs, and market participation: evidence from Côte d’Ivoire and Tanzania. Food Policy, 112, 102370. Retrieved from https://doi.org/10.1016/j.foodpol.2022.102370 Yao, B., Shanoyan, A., Schwab, B., Amanor-Boadu, & Vincent. (2023, May). The role of mobile money in household resilience: Evidence from Kenya. World Development, 106198. Retrieved from https://doi.org/10.1016/j.worlddev.2023.106198 Zivin, J. G., & Neidell, M. (2012). The impact of pollution on worker productivity. American Economic Review, 102(7), 3652-3673. doi:10.1257/aer.102.7.3652