Public Information Notice No. 99/13

Public Information Notice: IMF Concludes Article IV Consultation with Mali

February 25, 1999

On February 10, 1999, the Executive Board concluded the Article IV consultation with Mali¹.

Background

Economic and financial developments in Mali continue to be encouraging. Preliminary information indicates a real GDP growth rate of about 4½ percent in 1998, despite a fall in cereal production because of unfavorable weather conditions in the region. Average inflation is estimated to have been contained at about 4 percent. Mali’s competitiveness gains derived from the 1994 devaluation have been preserved, with the real effective exchange rate of the CFA franc still about 35 percent below the level prevailing before the change in the CFA franc parity. The external current account deficit (excluding official transfers) is estimated to have declined from 9¼ percent of GDP in 1997 to 8¾ percent in 1998, despite some delays in shipments of fiber cotton owing to the financial crisis in Asia. Monetary policy, which is conducted at the regional level by the Central Bank of West African States (BCEAO), remains prudent and broad money is estimated to have increased by about 5 percent in 1998, somewhat below nominal GDP growth.

The Malian authorities continued to implement their policy of fiscal consolidation in order to achieve financial viability. The overall deficit of the central government (on a commitment basis and excluding grants) was reduced from almost 8 percent of GDP in 1997 to 7½ percent in 1998, as a result of tax revenue enhancing measures and a tight spending policy. Measures to improve the efficiency of the tax and customs administrations, broaden the tax base, and strengthen tax compliance contributed to raising the tax revenue–to–GDP ratio above 13½ percent in 1998 from 12½ percent in 1996. Total government expenditure and net lending was reduced by ¾ of 1 percentage point of GDP to 22¾ percent in 1998. At the same time, the authorities continued to place emphasis on increasing social spending, in particular on health and education, with their share increasing to 34 percent of government current expenditure, or 3.6 percent of GDP in 1998.

Progress has been made on structural reforms in several areas. Expert adjudicators for the commercial courts, representing key segments of the private sector, were appointed and the government has begun implementing all uniform acts of the Organization for the Harmonization of Business Law in Africa (OHADA). Import duties have been subject to a limit of 30 percent and tariffs on intracommunity trade of approved industrial products of origin were reduced by 60 percent on July 1, 1998, as firsts steps towards implementing the Common External Tariff by the member countries of the West African Economic and Monetary Union (WAEMU) by January 1, 2000. The authorities have also made progress in preparing a comprehensive reform of domestic taxation, including a VAT at a single rate of 18 percent. The technical audit of the cotton company (CMDT) was completed, which will allow the government, in consultation with the World Bank, to define practical steps for achieving efficiency gains as well as its position regarding increased competition and private sector participation in the sector. Three public enterprises were privatized in 1998, and the management of the Hôtel de l’Amitié was transferred to a private operator in June 1998.

Executive Board Assessment

Executive Directors commended the authorities for the considerable progress made since 1994 under the economic programs supported by arrangements under the Enhanced Structural Adjustment Facility. They noted that in spite of adverse weather conditions, economic growth in 1998 had been sustained, inflation was subdued, and fiscal performance remained in line with program objectives.

In light of the still fragile economic situation, Directors urged the authorities to persevere with their policy of fiscal consolidation, including by modernizing the tax system, and to deepen and accelerate structural reforms. They noted that such steps are essential to improve Mali’s economic growth potential, reduce the country’s vulnerability to adverse shocks, improve social conditions, and make inroads on unemployment and poverty. Directors noted that Mali continues to need external assistance to achieve its social and economic goals. In this connection, they looked forward to Mali’s receiving additional debt relief under the HIPC Initiative, beginning at the completion point scheduled for end-December 1999.

Regarding fiscal policy, Directors were encouraged by the efforts made by the authorities to reduce the fiscal deficit in 1998, and welcomed their intention to further consolidate the fiscal position over the medium term. In this connection, they emphasized the importance of implementing without delay the domestic tax reform, in particular the introduction of a single-rate value-added tax at 18 percent; the broadening of the tax base to offset potential revenue losses related to the introduction, on January 1, 2000, of the common external tariffwithin the framework of the West African Economic and Monetary Union; and the strengthening of tax and customs administration. Directors encouraged the authorities to seek technical assistance in these areas. On the expenditure side, Directors encouraged the authorities to continue to exercise prudence by containing the wage bill and nonessential expenditure, while shifting budgetary resources toward human resource development, basic infrastructure, and poverty alleviation. They also stressed the need to exercise strict control over the costs of planned local government elections, and to stem developments giving rise to payment obligations arising from court rulings.

Directors stressed the importance of strengthening the financial system. They supported the recent decision by the Central Bank of West African States to adjust the reserve requirement and discount rate. Directors encouraged the authorities to follow up promptly on the recommendations of recent audits and studies of the Malian financial system, and to prepare a specific action plan to be implemented soon. In particular, steps should be taken to ensure that the commercial banks comply with prudential regulations, strengthen the assessment of credit risks, and make appropriate arrangements to reduce the problems of nonperforming loans. They also urged the authorities to promote competition among banks, and expedite the restructuring of Banque Internationale du Mali and the privatization of Banque Malienne de Crédits et de Dépôts.

Directors expressed concern about the delays in implementing structural reforms. They stressed the need for a sustained and determined approach to deepen and accelerate those reforms. Directors noted the need to complete the privatization program as scheduled, notably the restructuring and privatization of companies in the energy, telecommunications, and transportation sectors. With regard to the cotton sector, they welcomed the completion of the technical audit of the cotton company, and emphasized the importance of enhancing efficiency and competition in the cotton sector to ensure its continued profitable expansion, while increasing the income of producers and thus reducing rural poverty. Directors also urged the authorities to further improve the regulatory and legal framework to foster a more enabling environment for private investors. In this connection, they stressed the need to strengthen the judicial system.

Directors noted the weaknesses of Mali’s economic database, and encouraged the authorities to intensify their efforts to improve the quality and timely availability of the core economic indicators required for surveillance and program monitoring. They also urged the authorities to give greater attention to improving their social and demographic indicators.