News Brief No. 01/43

News Brief: IMF Completes Mauritania Review under PRGF and Approves US$8 Million Loan

May 10, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Mauritania's performance under the Poverty Reduction and Growth Facility (PRGF)¹. The completion of the review enables the immediate release of SDR 6.07 million (about US$8 million).

Mauritania's three-year program was originally supported under the Enhanced Structural Adjustment Facility (ESAF) approved on July 21, 1999 (see Press Release No 99/32), for SDR 42.49 million (about US$54 millions), of which SDR 24.28 million (about US$31 million) has been disbursed.

After the Executive Board's discussion on Mauritania, Eduardo Aninat, Deputy Managing Director and Acting Chairman, made the following statement:

"The Mauritanian authorities are to be commended for their continued prudent fiscal and monetary policies and the progress made in structural reform in 2000. The government implemented a number of important structural measures, in particular the privatization of Mauritel, the unification of the VAT rates, the elimination of surrender requirements on proceeds from non-mineral exports, and the completion of the second round of tariff reform that began in 1997. As a result of these policies, growth was robust, inflation remained subdued, and the external balance was under control."

"The completion of the PRSP, which identifies priorities and presents a clear and ambitious action plan for the medium term, is a major step in Mauritania's efforts to achieve a sustainable poverty reduction. Implementation of the poverty reduction strategy will be difficult, however, and it will be important to strengthen the absorption and implementation capacity and public expenditure management, as well as to improve the environment for private sector activity."

"The budgetary situation remains sound. Considerable improvements in tax administration toward the end of 2000 resulted in stronger tax collection. Fiscal policy in 2001 will be eased to increase expenditures on poverty-related projects and on social sectors, particularly on health and education. These expenditures will be financed in large part by external concessional resources and are not expected to generate inflationary pressures. The success of this relaxed fiscal policy, however, will depend on the authorities' efforts to increase efficiency and transparency of public spending and to ensure proper targeting."

"The authorities are encouraged to maintain a prudent monetary stance and to stand ready to tighten monetary conditions in case inflationary pressures emerge. The authorities are also encouraged to maintain competitiveness and diversify the export base."

"The external current account deficit is projected to rise in 2001, but should be easily financed by foreign direct investment and debt relief. The authorities should pursue a prudent external debt policy in 2001 and the medium term, monitor closely any nonconcessional debt contracted by public enterprises, and to service external debt on a timely basis."

¹ On November 1999, the IMF's facility for low income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies 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. Mauritania completed its Poverty Reduction Strategy Paper at end-2000. This resulted from a broad participatory process, which led to the elaboration of a comprehensive long-term strategy with a prioritized action plan for the period 2001-04. This strategy, which will guide the policy setting in the context of the arrangement, is based on four main pillars: accelerating growth, reorienting growth to benefit directly to poor, promoting human resources, and promoting institutional development based on good governance. PRGF loans carry an annual interest of 0.5 percent, and are repayable over 10 years with a 5 1/2 year grace period on principal payments.