Program Note
Islamic Republic of Mauritania
Last Updated: April 18, 2012
Current IMF-Supported Program
Three-year US$118.1 million arrangement under the Extended Credit Facility (ECF), approved by the IMF's Executive Board on March 15, 2010.
Background
Mauritania, rich in natural resources, rebounded vigorously from the global crisis, spurred by the commodity price boom of the past two years. More recently, however, the recovery has slowed amid the drought that hit the Sahel region and lower external demand from Europe. A comprehensive reform agenda aims at lowering unemployment and poverty, which are stuck at high levels, and at fostering private-sector development, which is lagging.
Role of the IMF
In support of the authorities’ program, the IMF’s Executive Board approved a three-year arrangement under the ECF totaling US$118 million on March 15, 2010. Performance under the program has been good to date, and the IMF completed the third review on December 12, 2011, paving the way for a fourth disbursement of US$17.1 million. The IMF is also providing technical assistance to build capacity in public financial management, tax policy, and revenue administration; strengthen the central bank’s prudential and liquidity management framework; and improve the production of government economic statistics. Full implementation of this reform agenda will contribute to poverty reduction and generate broad-based inclusive growth.
Progress to Date under the ECF
The Mauritanian authorities have made good progress in anchoring macroeconomic stability. Inflation has been contained, and economic growth has remained resilient despite a drought-related downturn in agricultural production. Revenue from key metal exports (at near-record prices) has more than offset the cost of swelling food and energy imports, leading to a significant improvement in the country’s external position in 2011. Fiscal consolidation continued owing to higher mining revenues, improvements in tax administration, and the containment of the large public wage bill.
The Challenges Ahead
A severe drought represents the main immediate challenge. The 2012 draft budget appropriately incorporates emergency drought relief and investment expenditures, while remaining consistent with the fiscal consolidation path that is required for macroeconomic stability. However, additional external assistance will be needed if the impact of the drought turns out to be more severe than anticipated.
In addition, Mauritania continues to face several longstanding challenges stemming from a narrow production base, vulnerability to external shocks, a weak business climate, and high poverty levels. One out of two Mauritanians lives below the poverty line, and the country’s food situation remains structurally precarious with a significant segment of the population (11 percent) subject to food insecurity.
Achieving broad-based growth will help address Mauritania’s longer-term challenges and reduce vulnerabilities. This calls for continued progress on the structural reform agenda—including deepening financial intermediation, reforming the labor market, improving the business environment and physical infrastructure, and strengthening social protection—as well as timely financial support from the international community. A sound macroeconomic policy mix will also be crucial. Continued commitment to fiscal consolidation will help create additional fiscal space for urgently needed pro-poor spending, especially through better-targeted and more cost-effective social safety nets.
The current outlook for Mauritania’s economy has become more challenging with weaker external demand, lower metals prices, and the negative social impact of the drought. But Mauritania should be able to weather these challenges, provided that it continues to implement its reform agenda and receive adequate financial support from the international community.
