Program Note
Islamic Republic of Mauritania
Last Updated: June 6, 2009
Current IMF-Supported Program
Three-year US$24.2 million arrangement under the Poverty Reduction and Growth Facility (PRGF), approved by the IMF's Executive Board on December 18, 2006. The PRGF arrangement was suspended in early October 2008 and will expire on December 17, 2009.
Background
After assuming power in a bloodless coup in August 2005, the transition authorities put governance at the center of their program, ending more than a decade of misreporting of data to the IMF, and paving the way for Mauritania's qualification for the Multilateral Debt Relief Initiative in June 2006. The successful organization of Mauritania's first fair and free presidential elections in April 2007 and the government's far-reaching economic reform program encouraged foreign investors and generated strong donor support. However, the August 2008 coup d'etat staged by a military junta, led many bilateral and multilateral donors to suspend their aid flows.
On June 4, the main political parties signed an agreement that seeks to restore constitutional order and the democratic process that had been initiated in 2006. Under the new agreement, a transitional government, including members of the opposition, will govern the country until the presidential elections, which are set for July 18 for the first round, and, if necessary, early August for the second round. Major donors and development partners support the signed agreement, but, it is unclear whether the international community will recognize the transitional unity government.
Role of the IMF
The focus of Mauritania's 2006-09 PRGF was to restore macroeconomic stabilization while developing a far-reaching program of structural reforms to foster private sector-led growth, encourage diversification, and make progress on the poverty reduction agenda.
Progress to Date
While implementation of the PRGF program had been satisfactory at the time of the July 2008 review of the program, in early October 2008, the PRGF arrangement was suspended. Following the coup d'etat in August, IMF member countries representing a majority of the voting power indicated that they did not recognize the current regime as the government of Mauritania. Accordingly, while remaining a member of the Fund, without a government with which the IMF can deal with, Mauritania is unable to exercise its membership rights, including rights to request financial and technical assistance. Staff continues to monitor economic and financial developments in Mauritania with the help of the resident representative in Nouakchott. The normalization of relationships with the international community would also lead to normalization with the Fund and a possible resumption of Fund financial support.
The Challenges Ahead
The sanctions imposed after the recent coup, the impact of the global economic slowdown, and a loosening of fiscal policies resulted in a marked deterioration of the macroeconomic situation in the second half of 2008, reversing much of the progress that was achieved earlier under the PRGF. The fiscal position has worsened sharply, resulting in a draw down of the treasury account and possible arrears accumulation. Foreign exchange reserves keep declining, despite renewed foreign exchange rationing. Moreover, the recent drop in iron ore prices is expected to exert further pressures on international reserves and the government fiscal balance. The immediate economic outlook for Mauritania will critically depend on establishing a government with strong economic reform agenda and international support.
