Significant progress has been made in recent years in the management of government finances. Until 1989, there were no formal government budgets, and fiscal policy was based on summary documents submitted to the Cabinet for approval. The first finance bill (government budget) was approved by ordinance in February 1989, and provided for detailed rules regarding revenue collection and appropriations. In 1995, government budgetary restraint was generally maintained though continuing problems with tax collections and excessive government expenditures were again apparent in 1996. This led to the International Monetary Fund suspending in March its Extended Structural Adjustment Facility accord with the government.
From 1989 onward, a monthly monitoring system was established by the Guinean Treasury. In order to clarify the existing rules and regulations, as well as to enhance the transparency of the tax system, several codes were issued in recent years, including a Recording Tax and Fee Code (1989), a Direct Tax Code, and a Customs Code (1990). In addition, an organic finance bill (which legally defined the scope and role of annual finance bills) and a decree governing public sector accounting were issued in January 1991.
The 1992 budget was formulated against the background of a sharp decline in Guinea's terms of trade - largely due to falling world market prices for bauxite. Despite a large range of structural adjustment measures, there was a residual financing gap of some GNF-300 billion (11 percent of GDP), which largely represented the need to consolidate accumulated external payment arrears. The 1992 budget proved to be over-optimistic, particularly as concerns revenue collection, due to a drop in mining sector revenue.
Mining sector revenue projections were scaled down in the 1993 finance bill. The 1993 fiscal program, nevertheless, aimed at reducing the overall budget deficit through a combination of enhanced nonmining revenue collection and a containment of current expenditure. To achieve this end, little or no adjustment in civil service salaries was allowed for in the 1993 budget. At the same time, various provisions were required to cover the costs of the democratization process, including the holding of the country's first multi-party elections and the setting up of new institutions (such as a Parliament and Supreme Court).
In 1994, there was an overall balance of payments deficit of approximately $143 million. In 1995, this figure was expected to shrink to $32 million, with increasing balance of payments surpluses expected from 1996 onwards. Increased government expenditures in 1995-96 make this target unlikely.
In 1994, the Guinea government made the decision to increase the executive branch from 17 to 28 ministerial departments (since reduced to 22) and the number of regional capitals from four to eight. The effect of implementing these changes thus far has been to crowd out the high priority Public Investment Program expenditures.
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