News Brief No. 02/47

News Brief: IMF Completes Fifth Review Under Mauritania's PRGF Arrangement, Approves In Principle US$8 Million Disbursement

June 10, 2002

The Executive Board of the International Monetary Fund (IMF) has completed in principle the fifth review of Mauritania's performance under an economic program supported by a Poverty Reduction and Growth Facility (PRGF) credit. The Board's decision will become effective after the World Bank's review of the PRSP Progress Report, which is currently scheduled for June 18, 2002. Upon effectiveness of the IMF Board's decision, Mauritania will be able to draw up to SDR 6.07 million (about US$8 million) from the arrangement, which would bring the total disbursements under the arrangement to SDR 36.42 million (about US$47 million).

The Executive Board also approved Mauritania's request to extend the program for another five months to December 20, 2002. This extension was requested by the authorities to permit the conclusion of the sixth review and secure approval of the final disbursement under the IMF-supported program of SDR 6.07 million (about US$8 million).

Mauritania's three-year PRGF program was originally supported under an Enhanced Structural Adjustment Facility (ESAF) that was approved on July 21, 1999 (see Press Release No. 99/32).

The PRGF, which is the IMF's concessional facility for low-income countries, is the successor arrangement to the ESAF. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.

PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion of Mauritania, Eduardo Aninat, Deputy Managing Director and Acting Chairman stated:

"The Mauritanian authorities are to be commended for Mauritania's solid economic performance and a good start to the implementation of the country's poverty reduction strategy. Despite the impact of the recent global economic slowdown and the contraction in the agricultural sector, growth was relatively solid in 2001, the reserve position was comfortable, and inflation was contained. These results reflected the sound macroeconomic and structural policies pursued by the authorities.

"Poverty and social indicators have improved, as shown by the 2000 household survey. However, the authorities need to continue to strengthen their efforts to further improve these indicators and ensure a sustainable and equitable reduction in poverty. The first-year's experience with the implementation of the PRSP should be carefully reviewed to help improve implementation in the coming years.

"Despite the favorable economic outlook, important downside risks remain, especially in view of the economy's vulnerability to external shocks. The authorities need to take steps to diversify the economy to reduce the dependence on fish and iron ore exports, and would be well advised to maintain a relatively high level of international reserves and responsive macroeconomic policies.

"The authorities are committed to take measures to upgrade poverty expenditure tracking, and have recently received a joint Bank-Fund fiscal Report on the Observance of Standards and Codes and the Country Financial Accountability Assessment, aimed at improving transparency and accountability of all public spending. The authorities intend to accelerate their efforts to improve implementation capacity, which remains a major impediment to project execution and thus poverty reduction, and are encouraged to develop analytical tools for a social impact analysis of macroeconomic policies.

"The authorities are urged to follow through vigorously with structural reforms-especially regarding banking supervision, monetary management, and privatization-and will need to address the difficult financial position of the social security fund. The initiation of a restructuring of the central bank with a view to enhance its effectiveness is also welcomed, as is the implementation of the recommendations of the Fund's safeguards assessment of the central bank.

"The broad participatory approach used to disseminate the PRSP and debate its priorities is commendable. However, the authorities need to focus their efforts on improving the linkages between policy decisions and poverty diagnostics, sharpening the sequencing and prioritization of policies, and improving monitoring and evaluation systems.

"Mauritania has made satisfactory progress toward reaching the completion point under the enhanced HIPC Initiative, having observed most of the triggers set at the time of the decision point. Continued efforts to meet all remaining triggers, and to come as close as possible in the near future to meeting the remaining ambitious education and health targets, are strongly urged.

"According to the debt sustainability analysis based on end-2001 data, Mauritania's external debt position is expected to be sustainable in the future. Nonetheless, external debt policy should remain prudent and rely as much as possible on grants or highly concessional borrowing." Mr. Aninat said.