December 2, 2016 / 10:37 PM / 8 months ago

IMF lifts freeze on Guinea-Bissau funding

ABIDJAN, Dec 2 (Reuters) - The International Monetary Fund (IMF) on Friday resumed payments to Guinea-Bissau which were suspended in June over the government's loan bailouts for two private banks.

The decision by the IMF's board could also lead donors, which also suspended budget support equal to 2.1 percent of GDP for this year, to follow suit.

Total donor contributions, including direct budget support and financing for targeted sectors and projects, typically make up around 80 percent of Guinea-Bissau's budget.

"The authorities' resolute stance in unwinding the bank bailouts is welcome," Mr. David Lipton, the IMF's First Deputy Managing Director, said in a statement following the board meeting.

"Following through all steps until the bailouts are irreversibly unwound will be important to safeguard public finance," he said.

The IMF agreed a programme with Guinea-Bissau last year after 2014 elections followed a coup two years earlier, one of a succession that spawned political instability and helped make the West African country a haven for South American cocaine traffickers.

Disbursements were suspended, however, after the government took on 34 billion CFA francs ($58.3 million) in bad loans from Banco da Africa Ocidental and Banco da União whose value amounted to around 5.5 percent of GDP.

The IMF had argued the bailouts benefited the wealthiest citizens and foreign investors. Authorities had said they were needed to shield the private sector from bankruptcy.

The IMF will now disburse $6.9 million, bringing total disbursements to date under the three-year programme to about $10.8million, the statement said.

Reporting by Joe Bavier

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