In Guinea-Bissau, economic growth and development are still constrained by structural challenges that prevent the country from reaching its full potential.
The economy remains highly dependent on the export of raw cashew nuts. These make up around 90% of export value and provide income to around 80% of the population, mainly smallholder farmers. This dependency makes Guinea-Bissau susceptible to external shocks, including highly volatile international prices, and adverse climatic conditions, such as irregular rainfall or floods. In 2023, another difficult cashew campaign limited the translation of high production into economic growth.
The fiscal situation also worsened in 2023. Despite the government’s commitment to a fiscal consolidation program that preserves medium-term sustainability, the overall fiscal deficit widened to 7.6% of GDP in 2023, from 6.1% in 2022. The weak export performance of the cashew campaign put pressure on the fiscal situation as total revenues fell, causing the fiscal deficit to widen.
In addition, political uncertainty, both domestically and regionally, continues to have a negative impact on the economy.
Guinea-Bissau also lacks a conducive enabling environment for private sector-led growth due to low levels of infrastructure, human capital, and public services. This challenging business environment, paired with policy uncertainty and weak institutions, undermines private sector investment, preventing progress in economic diversification.
In this scenario, poverty remains widespread in Guinea-Bissau. It has followed an upward trend since 2018 and is more pronounced in rural areas than urban areas because of low productivity agricultural production.
The public sector pension system and its impact in the economy
The Economic Update 2024 shows that the public sector pension schemes face challenges with very high fiscal consequences for the country. Pension payments are made using the general budget which exacerbates already high budget rigidity and adds additional challenges to the fiscal consolidation objectives of the government.
The main challenge faced by the public sector pension schemes is one of governance. Pension payments overly benefit a very small fraction of beneficiaries and benefit a very small share of the elderly, while discretionary changes deviating from the pension rules are made to individual pension amounts. An analysis of the 2016 and 2023 payroll databases gives the perception that pension payments are “captured” by those responsible for the implementation of the schemes.
Some measures could be taken immediately to improve the public services pension schemes. These measures include clarifying the parameters of the pension schemes, reviewing, and updating the list of pensioners, establishing a “proof of life” procedure, systematically making pension payments through the banking system, and, importantly, conducting an institutional assessment of the unit responsible for managing the public pension schemes.
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The Economic Update monitors significant recent economic developments in the country, highlighting the key structural challenges Guinea-Bissau faces in its pursuit of inclusive and sustained growth. This year’s edition – Retiring the Fiscal Risk - presents a comprehensive overview of the state of the economy, the pensions system, and provides several recommendations for Guinea-Bissau to overcome the existing challenges, boost economic growth and take a step forward in its development trajectory. Download the report here.