Public Information Notice No. 00/85

Public Information Notice: IMF Concludes Article IV Consultation with Mali

October 10, 2000

On September 6, 2000, the Executive Board concluded the Article IV consultation with Mali.¹

Background

Economic and financial developments in 1999 and 2000 were marked by a sizable terms of trade loss and severe difficulties in the cotton and energy sectors. However, economic growth was sustained with real GDP expanding by 5 ½ percent in 1999, on account of a strong rebound of cereal production and a further increase in gold mining activities. The consumer price index declined by 1¼ percent reflecting lower food prices. The external current account deficit (excluding official transfers) increased to 10½ percent of GDP, mainly due to the deterioration in the external terms of trade. Money demand remained weak, with broad money increasing by about 1 percent, much less than nominal GDP. Credit to the economy rose by 14½ percent partly because of financial difficulties in the cotton sector, which delayed the repayment of the 1999/2000 crop credit.

Important fiscal reforms were introduced in 1999. They comprised the putting in place of the Common External Tariff of the West African Economic and Monetary Union (CET), the move to a single-rate value-added tax at 18 percent, and putting firm foundations in place for the modernization of the domestic income taxation.

Fiscal performance in 1999 was affected by the negative revenue impact of the more difficult economic environment. Factors that contributed to the poor revenue outcome include lower tax receipts from the cotton company, higher-than-foreseen revenue losses from the introduction of the CET, and lower economic growth. The overall budget deficit (commitments basis and excluding grants) increased by ¾ of 1 percentage point to 9 percent of GDP in 1999. In order to avoid a further deterioration of the fiscal position in 2000, the authorities took revenue measures including the increase in petroleum retail prices, and curtailed nonpriority spending.

Program implementation in 1999 was marked by policy slippages and delays in putting in place structural reforms including in the key areas of cotton, energy, transport and telecommunications. As a result, the first review under the Poverty Reduction and Growth Facility (PRGF) as well as the completion point under the original Heavily Indebted Poor Countries Initiative (HIPC), were delayed. During the first half of 2000, the new government took corrective actions which included: the completion of the financial audit of the cotton company (CMDT); the launch of the final call for bids to privatize at least 60 percent of the electricity company's capital (EDM); the official announcement by the government of the new reform plan for the telecommunications sector; and the start of the financial audits of the Caisse de Retraite du Mali (CRM) and the Institut National pour la Prévoyance Social (INPS). The authorities also agreed with the World Bank on new timetables for outstanding measures, and confirmed their commitment to pursue the reform agenda.

Although economic growth achieved in recent years has contributed to the improvement of living conditions, poverty remains widespread in Mali. The authorities have decided to make poverty reduction a core element of their development strategies, and have prepared an interim-Poverty Reduction Strategy Paper (I-PRSP), outlining the next steps for the development of a full PRSP, in a participatory manner.

Executive Board Assessment

Directors noted that, in 1999 and 2000, the Malian economy suffered from sizable terms of trade losses and serious difficulties in the cotton and electricity sectors. As a result, macroeconomic performance was mixed and some key structural reforms were delayed. In this context, Directors welcomed the corrective measures taken by the new government and its commitment to push ahead with structural reforms. They noted that the economy had, nevertheless, continued to expand at a good pace, although somewhat lower than anticipated, and that inflation had declined. Directors expressed concern, however, regarding the worsening of the external current account deficit, but they observed that this mainly reflected the deterioration in the terms of trade.

Directors noted that fiscal performance in 1999 was adversely affected by the less favorable revenue outcome, partly related to the difficult economic environment. They were encouraged by the authorities' efforts to keep government spending under control, particularly on wages, and by the implementation of important fiscal reform measures, including the introduction of a single-rate value-added tax at 18 percent, aimed at compensating revenue losses resulting from the introduction of the common external tariff of the West African Monetary and Economic Union.

Directors observed that corrective measures were taken to prevent a further deterioration of the fiscal position in 2000, including the increase in petroleum retail prices, the reduction of nonpriority spending, and the implementation of a prudent wage policy. Nevertheless, they stressed the need to consolidate the fiscal position further through continued expenditure control and the broadening of the tax base. Directors also encouraged the authorities to move to a market-based pricing system for petroleum products.

Directors expressed concern about delays in the implementation of programmed structural measures in 1999. In particular, they urged continued resolve to carry out envisaged reforms in the key area of the cotton sector, as well as the ongoing liberalization and privatization in the energy, telecommunications, and transportation sectors. Directors observed that, while profitable, the banking system remains fragile. They welcomed the government's determination to strengthen financial intermediation and the health of the banking system. They encouraged the authorities to adhere closely to the new timetables agreed with the World Bank for reforms in these and other sectors.

Directors urged the authorities to pursue their efforts to strengthen good governance and curb corruption, and stressed the importance of improving the regulatory framework along with the overall environment for private sector activities.

Directors noted that, despite considerable progress in reducing financial imbalances and achieving growth through the implementation of sound macroeconomic policies and broad-based structural reforms, the Malian economy is still fragile and vulnerable to exogenous shocks.

Directors observed that, although the sustained growth achieved since the devaluation of the CFA Franc in 1994 has played a major role in improving living conditions for the poor, poverty remains widespread and social indicators very weak. Therefore, they welcomed the adoption by the government of an interim PRSP in which poverty reduction is at the core of its development strategies. Directors encouraged the authorities to pursue their efforts to improve social indicators, and urged them to push ahead with the preparation of a full PRSP with intensive consultation among stake holders.

Directors noted that financial assistance under the HIPC Initiative would greatly contribute to the improvement of social services provided to the most vulnerable segments of the population. In this connection, they noted that resources freed by debt relief under the HIPC Initiative will be used to cover additional spending under the ten-year development program for education, the ten-year social and health development strategy, and other poverty reduction programs.

The economic and financial database remains weak in Mali, which impedes a timely assessment of economic policies. Therefore, Directors urged the authorities to continue efforts to improve the quality and timeliness of macroeconomic and social data.