Mali and the IMF
News Brief: IMF Completes Review Under Mali's PRGF Arrangement
Free Email Notification
Mr. Horst Köhler
Dear Mr. Köhler:
1. On behalf of the government of Mali, and in the context of the third review of the program supported by an arrangement under the Poverty Reduction and Growth Facility (PRGF) approved by the Executive Board of the International Monetary Fund in July 1999, I am pleased to forward to you the memorandum of economic and financial policies for 2001-02. The memorandum describes progress made in implementing the program in 2001, the updated objectives for end-2001 and for 2002, and the policies that are envisaged to achieve these objectives.
2. Mali is going through the most difficult period of its recent economic history. Setbacks in the cotton and food crop sectors have led to an economic stagnation in 2001, after a period of sustained growth since the devaluation. Moreover, although growth is expected to recover in 2002, an anticipated decline in world cotton prices could further exacerbate the precarious situation in the cotton sector and government finances.
|3. Notwithstanding the difficulties faced by Mali, the authorities
resolutely implemented the program supported by the PRGF arrangement between
January and July 2001. All the quantitative benchmarks and performance criteria
for this period were met. During the period, the authorities launched a
series of measures in the cotton sector, implemented a new petroleum taxation
mechanism, and raised the utility rates for water and electricity. Moreover,
they adopted a plan for the annual allocation of HIPC Initiative-related
resources for the period 2002-05.
4. Despite sound implementation of the program, it is now expected that delays will be recorded in the mobilization of part of the program financing. To safeguard the initial program objectives to the maximum extent possible during this difficult period, the authorities have taken measures to mobilize additional revenues, delay some expenditure, and temporarily issue treasury bills. Accordingly, the government of Mali is requesting an amendment of the initial program objectives, as described in the memorandum of economic and financial policies.
5. The economic growth outlook for 2002, when key elections are scheduled to take place, is good. Owing to a substantial increase in cotton output as a result of the restoration of confidence among producers, as well as an increase in the cereal harvest with the return of favorable rainfall, the real GDP growth rate should reach about 7 percent in 2002. However, the significant drop in international cotton prices means that the initial fiscal targets for 2002 will have to be revised. A number of additional expenditures related to the crisis and the economic liberalization program are now planned. To cover these expenditures, the authorities will take steps to increase revenues and limit nonpriority current expenditures. The government is resolved to implement all the reforms and measures included in the program. The policies and measures described in the memorandum are appropriate to achieve the program objectives, but the government will take any other measures that might prove necessary to this end.
6. As described in the memorandum, the debt-service relief obtained since the completion point under the original Heavily Indebted Poor Countries (HIPC) Initiative and the interim financing obtained under the enhanced HIPC Initiative have been applied to the priority poverty reduction program contained in the interim poverty reduction strategy paper (I-PRSP). Preparation of the full PRSP is continuing in the context of a wide-ranging participatory dialogue. A progress report on the full PRSP has been prepared by the government.
7. The government is counting on the continued support of the International Monetary Fund to help it achieve the program objectives, including through the completion of the third review of the PRGF arrangement. In any event, the IMF and the government of Mali will conduct a review of the PRGF-supported program by June 30, 2002 and a fifth review by November 30, 2002 to assess progress made with its implementation.
8. Finally, the government will provide the IMF with any information it may request on progress made in implementing its economic and financial policies, as described in the technical memorandum of understanding, also attached. As in the past, the government remains committed to widely disseminating its memorandum of economic and financial policies and the technical memorandum of understanding, and authorizes the IMF to publish its staff report and to place it on its website.
Minister of Economy and Finance
Chevalier de l'Ordre National
Bamako, November 30 2001
1. For some time now, Mali has been going through the most difficult period of its recent economic history. Setbacks in the cotton and food crop sectors have led to an economic slowdown in 2001, after a period of sustained growth since the devaluation. Moreover, although growth is expected to recover in 2002, an anticipated decline in world cotton prices could further exacerbate the precarious situation in the cotton sector and of government finances.
2. Poverty reduction continues to be the priority of the development strategy pursued by the government of Mali. The government's commitment in this area reflects a twofold need: (i) to identify policies and instruments geared toward achieving the objective of poverty reduction, and (ii) to adopt appropriate short- and medium-term measures to enable the government to make rational and more effective use of domestic and external resources. To achieve their poverty reduction goals, the Malian authorities will implement economic, financial, and social policies aimed at promoting economic diversification. Private sector promotion remains central to the poverty reduction strategy, as it is anticipated that two thirds of growth in Mali will be generated by the secondary and tertiary sectors. To facilitate this diversification process, the Malian authorities are identifying a package of measures in the context of preparing the full poverty reduction strategy paper (PRSP), in order to address issues pertaining to (i) low labor productivity reflecting the shortage of skilled workers; (ii) the inadequacy of physical infrastructures; (iii) the high cost of factors of production (energy and telecommunications); (iv) the low level of financial depth; and (v) deficiencies in governance and efforts to deal with corruption. Furthermore, given the importance of the cotton sector to Mali's economy, the Malian authorities have launched a set of short- and medium-term reforms designed to restructure the Compagnie Malienne pour le Développement des Textiles (CMDT) and to liberalize the cotton sector in order to improve its competitiveness. The government's stated objective is to ensure that Mali can in the medium term achieve an annual growth rate averaging at least 5-6 percent, which will help to roll back poverty.
II. Program Implementation During the First Seven Months of 2001
3. The economic indicators recorded during the first half of 2001 indicate that a considerable slowdown in economic activity is emerging. Real GDP is expected to stagnate in 2001, largely on account of the crisis in the cotton sector, the difficulties in the food crop sector, and their ripple effects. The 47 percent decline in cotton production in 2000-01 is causing a slowdown in industrial and trade activities. The resultant drop in cotton producers' incomes in 2001 by about 40 percent will have an adverse impact on the demand for services. Average annual inflation reached 5 percent during the first nine months of the year, reflecting the downturn in cereal production in crop-year 2000/01. Preliminary data on foreign trade indicate that nonmining exports have slumped in relation to 2000, largely as a result of the dramatic decline in cotton exports. Conversely, the value of gold exports virtually doubled compared with the same period in the preceding year. At the same time, largely owing to an increase in imports of petroleum products and of equipment for the mining sector, as well as imports for strengthening the capacity of the energy company (EDM), merchandise imports grew significantly during the first half of 2001.
4. From the fiscal standpoint, tax revenue slightly overshot the programmed objective, reaching CFAF 155.9 billion as at July 31, 2001. The programmed objective was exceeded even though oil revenues recorded a shortfall of approximately CFAF 6.0 billion during this period. This favorable performance by nonoil revenues reflects the increase in the tax yield following the implementation of administrative measures affecting the tax revenue and collection agencies. Overall expenditures stayed below program targets in spite of a larger-than-anticipated increase in domestically financed capital expenditures in priority sectors. Current expenditures are estimated at CFAF 121 billion (as against CFAF 131.5 billion under the program). The expenditures funded with the Initiative for Heavily Indebted Poor Countries (HIPC Initiative)-related resources likewise fell short of expectations because the supplementary budget law authorizing a higher level of HIPC Initiative expenditures in keeping with the program (CFAF 13.6 billion) was not adopted by the National Assembly until September 2, 2001. The basic budget balance (excluding resources freed as a result of the HIPC Initiative) reached a level of CFAF 3.0 billion during the period January-July 2001, that is, it overshot the target by CFAF 1.6 billion. This favorable fiscal performance continued into September 2001, with a basic balance of CFAF -1.6 billion during the period January-September 2001, compared with a target of CFAF -5.4 billion.
5. The government has also intensified its poverty reduction program as set forth in the interim poverty reduction strategy paper (I-PRSP). Funding for priority programs has been increased in 2001 through higher budgetary resources, debt service relief obtained following the completion point under the original HIPC Initiative, and the interim financing obtained through the enhanced HIPC Initiative. A special treasury account was opened at the Central Bank of West African States (BCEAO) to house HIPC Initiative-related resources, and the allocation of resources in favor of poverty reduction reflects the priorities identified in the I-PRSP.
6. Credit to the economy increased during the first nine months of the year. During the same period, the net foreign assets of the BCEAO, as well as those of banks, increased. The quality of banks' portfolios deteriorated somewhat, as doubtful and disputed claims increased from 7.9 percent of all credit to the economy as at end-December 2000 to 8.9 percent as at end-June 2001, reflecting the ripple effects of the cotton sector crisis. However, most banks complied with the main prudential ratios of the West African Economic and Monetary Union (WAEMU). Microcredit institutions (the network of credit unions and other local networks) continued to grow, mainly as a result of their higher visibility in rural areas, as evidenced by the rate of increase in deposits, which stood at 21.5 percent as at end-2000.
7. In spite of the difficulties facing Mali, the Malian authorities have resolutely pursued the implementation of the program supported by the Poverty Reduction and Growth Facility (PRGF) for 2001, as described in the memorandum of economic and financial policies of July 9, 2001. All the quantitative performance criteria and benchmarks for July 2001 have been met (Appendix I, Table 1). With respect to structural reforms, the following has been done:
III. Amended Program Objectives for the Remainder Of 2001
8. In view of the delays encountered in mobilizing some budget financing (estimated at CFAF 15.4 billion), the program for the remainder of 2001 will have to be revised. Privatization revenues (CFAF 8 billion) and a portion of donor resources (CFAF 7.4 billion) are now expected by the first quarter of 2002. To ensure that the initial program objectives are fully protected, the government has taken steps to (i) mobilize additional tax revenues (CFAF 2.6 billion), (ii) carry forward a portion of expenditures (CFAF 10 billion) payable to the Banque de développement du Mali (BDM)) to 2002, and (iii) temporarily to issue treasury bills (CFAF 2.8 billion). The government is committed to transferring to the BDM, during the first half of 2002, the sum of CFAF 10 billion, which was payable to the BDM by the CMDT. To address the cash-flow needs emerging in the last quarter of 2001 while waiting for external financing (now expected toward the end of 2001), the authorities have resorted to central bank financing on an exceptional basis for an amount equivalent to CFAF 29.1 billion and will issue treasury bills for an amount not exceeding CFAF 3 billion. The authorities are committed to reimbursing the statutory advances from the BCEAO and to redeeming the bonds, as donors' financing is made available in 2001, and they will redeem the treasury bills by end-March 2002 at the latest.
9. To reflect the pace of disbursement of budgetary assistance, the overall level of expenditures not carried forward is expected to catch up during the last quarter of the year to the programmed level. The wage bill will be kept within the limit of CFAF 82 billion envisaged in the program. Electoral expenditures will be limited to the CFAF 9 billion recorded in the program in 2001. The same applies to the costs associated with restructuring the cotton sector, which will now be capped at CFAF 13 billion, consistent with the revised program.
10. The volume of fiscal revenues should stand at CFAF 290.9 billion in 2001, thereby exceeding the initially programmed level by CFAF 2.6 billion, owing to the continuing improvement in the performance of the tax administration. Revenue from the mining sector is projected to reach CFAF 21.3 billion. In view of the increase in revenues and carryforward of expenditures, the basic fiscal balance is expected to record a maximum deficit of CFAF 46.3 billion in 2001, compared with a programmed deficit of CFAF 57.8 billion. The authorities have requested that the performance criterion for the ceiling on the net government position be revised upward by CFAF 2.8 billion.
11. With regard to structural reforms, the authorities will take all appropriate steps to ensure the implementation of the revised timetable in the letter of development policy for the cotton sector. As a direct consequence of the delays in mobilizing the funding for the studies specified in the letter of development policy, the implementation of the two performance criteria for end-December 2001—the launch of the call for bids for the sale of the assets of the Office de la Haute Vallée du Niger (OHVN) and the completion of the medium-term financial restructuring plan for the cotton sector—will be postponed. One of the two structural benchmarks for the cotton sector will also be delayed—namely, adoption of the plan for the gradual withdrawal of the CMDT from public service activities and the associated social plan—now scheduled for end-February 2002 instead of October 31, 2001. However, the adoption and implementation of a mechanism for setting the producer price of seed cotton (to reflect movements in international cotton fiber prices and to take account of prices prevailing in neighboring countries) will be completed as planned by end-December 2001.
12. In spite of the delays in reforming the cotton sector, the government reaffirms its commitment to move forward in this area, particularly in light of the unprecedented downtrend in cotton prices on world markets. All of the measures planned for 2001 under the program will be implemented by March 2002. Additional measures for reducing the production cost of cotton fiber (by lowering the operating costs of the CMDT) will be carried out. These consist in further reducing the wage bill, overhead, consulting and training expenses, vehicle operation costs, and, particularly, expenditures related to industrial activity.
IV. Macroeconomic Framework for 2002
13. To achieve the poverty reduction target that it has set for itself, the government will continue to gradually reorient its budget in favor of priority expenditures (education, health, and rural development). For 2002, the macroeconomic objectives of the program are growth in real GDP of approximately 7 percent; an inflation rate (as measured by the GDP deflator) of about 3 percent; a basic fiscal balance of -1.7 percent of GDP; and a current account deficit (excluding grants) of 12.5 percent of GDP. These objectives reflect trends in cotton prices on the international market, which have fallen about 30 percent in relation to baseline projections. The government considers that the real GDP growth target of 7 percent for 2002 remains achievable despite unfavorable international economic conditions, inasmuch as seed cotton production is projected to surpass the baseline scenario level by approximately 15 percent.
14. In 2002, when key elections are scheduled, Mali faces a challenging international environment, fraught with uncertainty, particularly as regards cotton prices. The crisis in the cotton sector has had a destabilizing effect on the entire Malian economy. The government is determined to respond effectively to this situation; however, this task is complicated by the uncertain global environment. It is anticipated that in 2002 cotton prices on world markets will fall about 30 percent short of program projections. However, the government's support for producer prices in 2002—a key element of its poverty reduction program—and the abundant rainfall point to a harvest of approximately 575,000 tons of seed cotton for crop-year 2001/02. The fact that production has rebounded to this record level bears witness to rising confidence among producers and should lead to a substantial increase in rural incomes. The steady downturn in world cotton fiber prices, combined with the decline in the dollar, will serve to exacerbate losses in the cotton sector. Reflecting the good rainfall, cereal production is projected to increase by about 5 percent and inflation to fall from 4.6 percent in 2001 to approximately 3.0 percent in 2002.
15. The balance of payments in 2002 will be affected by the unfavorable trends in cotton prices. Moreover, mining sector output will fall short of the record level achieved in 2001. Cotton sector exports are expected to increase substantially; however, with the decline in cotton prices, export revenues will fall short of initial forecasts.1 Moreover, nonmining imports will increase with the rise in disposable income, whereas mining sector imports will fall slightly. The net effect will be a slight deterioration in the trade balance, which should be virtually in equilibrium. The current account balance is expected to worsen in comparison with the baseline projections, reflecting the increase in imports of the gold sector and the outward transfer of this sector's investment income. This deterioration should, nonetheless, be offset by continuing substantial capital inflows, especially in the gold sector, and by a sustained level of foreign aid. In order to finance its investment program, Mali will continue to rely on concessional debt. As Mali is benefiting from debt relief, as of 2002 there will be no nonconcessional borrowing either at the central government level or by public enterprises. The government is committed to pursuing negotiations with the Russian authorities to reschedule the service on the debt owed since 1998 and not paid on account of the ongoing discussions.
V. Program Targets for 2002
16. The objective of fiscal policy in 2002 is to achieve a reduction in the basic fiscal deficit in order to limit government indebtedness. The basic fiscal balance is expected to record a deficit of 1.7 percent of GDP in 2002. The overall level of expenditures reflects (i) the additional amounts mobilized under the enhanced HIPC Initiative (CFAF 5.4 billion); (ii) additional expenditures related to the education and health sectors (CFAF 3 billion); (iii) the increase in transfers allotted to the CMDT to cope with the decline in cotton prices (CFAF 12.2 billion); (iv) the shifting of cotton sector-related expenditure from last year (CFAF 10 billion); and (v) additional expenditures linked to the social plans associated with the government's liberalization policy in the cotton sector and the privatization of public enterprises (CFAF 9 billion). To cope with these additional expenses, the Malian authorities will take steps to raise additional revenue (CFAF 11.3 billion) relative to the baseline projections, and they are determined to keep all nonpriority expenditures to a bare minimum, particularly transfers and other current expenditures. Furthermore, in order to emphasize the exceptional nature of this subsidy for the cotton sector, the government will enter into wide-ranging discussions with cotton producers to inform them of trends in prices on world markets and to familiarize them with the new pricing mechanism, which will establish a link between producer prices, on the one hand, and international prices and prices observed in neighboring countries, on the other hand.
17. Current expenditures (excluding those related to the HIPC Initiative-related expenditures) are projected at CFAF 271.8 billion in 2001, representing a slight reduction relative to GDP in comparison to 2001. The wage bill will remain within the limits established in accordance with WAEMU criteria, and for 2002, it will be limited to CFAF 87.1 billion. Scholarships will be capped at CFAF 5.6 billion per year as envisaged in the ten-year program for education (PRODEC), and transfers and other current expenditures will be kept to a minimum. Domestically financed capital expenditure in 2002 will increase by approximately CFAF 3.8 billion over the 2001 level. Within this envelope, investments related to the African Soccer Cup (CAN) will be limited to CFAF 10 billion. Consistent with the goals of PRODEC and the ten-year program for health (PRODESS), as well as the basic infrastructure development program, expenditures of the priority social sectors will increase by approximately 12 percent in relation to 2001 (including from HIPC Initiative-related resources). HIPC-related resources in favor of the poverty-reducing outlays are expected to amount to CFAF 25.5 billion. To cushion the social impact of its policy of liberalizing the cotton sector and privatizing public enterprises, the government has undertaken an assessment of the costs associated with the social plans. Pending the results of this assessment, the government has allotted an estimated sum of CFAF 10 billion in its 2002 budget.
18. To meet these expenditures, tax revenues will increase by ½ of 1 percentage point in relation to GDP to reach 15.5. percent of GDP in 2002 (CFAF 321.7 billion). The introduction of the new mechanism for the taxation of petroleum products in July 2001 is expected to show its full impact in 2002, with projected revenues of CFAF 63.6 billion. To reach these objectives, the rates for the specific tax on petroleum products (taxe spécifique sur les produits pétroliers—TIPP) have increased from their July 2001 levels. Furthermore, if the downward trend in oil and gas prices continues, as reflected in a decrease in Mali's import prices, the government plans to increase the TIPP in the course of the year to ensure that the revenue levels are achieved. The Malian authorities have implemented most of the reforms required to improve the structure of the tax system with the adoption of the common external tariff (CET) and a single-rate value-added tax (VAT). Other tax reform measures are in the pipeline, particularly an increase in a number of excise duties, as well as the harmonization of the BIC rate with a view to raising tax revenues. Moreover, the administrative measures being taken will be strengthened. Accordingly, since January 1, 2001, the single taxpayer identification number has been used systematically by all tax administrations—a practice that has improved communication among the various assessment and collection agencies. Furthermore, the National Directorate of Taxes (DNI) has launched a procedure to bring the informal sector into the tax base and has allocated additional resources to units responsible for tax assessments, which should improve the tax yield. The government will continue its effort to strengthen the capacities of the various tax administrations through the use of data processing tools, transport equipment, and professional training. The mining sector will contribute to fiscal revenues in the amount of CFAF 17.3 billion in the form of dividends and other revenues, compared with CFAF 21.3 billion in 2001, reflecting the downturn in mining production.
19. Given the importance of regional integration to a landlocked economy like Mali's, the government will continue to take all necessary steps to ensure expeditious compliance with all of the WAEMU convergence criteria. To this end, the government will spare no effort to reduce its financing needs and to implement a vigorous fiscal policy and a cautious borrowing policy, so as to gradually reduce the debt ratio. With respect to revenues, further efforts to broaden the tax base and to enhance domestic tax collection are expected to push the ratio of tax revenues to GDP over 17 percent. To facilitate medium-term efforts to enhance the efficiency of the civil service and improve control over the wage bill, an action plan for reforming the civil service will be prepared and discussed with Mali's partners prior to March 31, 2002. An organizational audit of the civil service is in progress and is scheduled for completion in November 2001.
20. Reflecting the BCEAO's monetary policy objectives of strengthening the WAEMU's external reserves and maintaining an inflation level compatible with that of the anchor currency, the expansion of the money supply in 2002 is projected at approximately 9 percent, in line with the growth in nominal GDP. Credit to the government is projected to increase slightly, while credit to the economy is expected to increase by about 6 percent, compatible with the outlook for economic activity. With the aim of preserving the soundness of the banking system, the government issued treasury bills in July 2001 in order to repay the crop credit, in the amount of CFAF 12 billion. The government is committed to beginning the redemption of these bills (one half in 2002 and the other half in 2003). The redemption of treasury bills issued in December will be carried out during the first quarter of 2002, owing to a revision of the program. By virtue of the implementation of the plan for repayment of the banking system by the CMDT, the financing of the current crop year now seems to be well in hand. In order to implement the decision of the WAEMU Council of Ministers to eliminate statutory advances from the BCEAO and to ensure perfect substitutability between bank financing and bills or bonds that the Malian Treasury may issue on the national or regional market, the previous performance criterion on the change in net bank credit to the government will be replaced beginning in end-June 2002 by a performance criterion on net domestic financing (bank and nonbank). The indicative ceilings adopted under this new criterion are a net indebtedness of CFAF 16.5 billion as at end-March 2002, and CFAF 16.5 billion as at end-June 2002.
21. Efforts to strengthen the banking system will continue, particularly through increases in the capital and reserves of banks, which will endeavor to adhere to the new capital adequacy ratio scheduled to take effect on January 1, 2002. Having due regard for microfinance sector's important role in rural development and the informal sector, the government will continue to promote the sound development of microfinance, particularly by strengthening supervision capacity.
VI. Structural Reforms
22. The structural reform program for 2002 will focus on two key issues: ensuring continuity in cotton sector reform and improving public expenditure management.
A. Cotton Sector
23. The government of Mali reaffirms its commitment to pursue the liberalization of the economy, as reflected in the state's withdrawal from production, industrial, and commercial activities in favor of the private sector. At the time of the cotton sector participatory forum (États Généraux) held in April 2001, the government pointed out that, in view of its importance, the cotton sector had to be included in its liberalization policy. In accordance with the main conclusions of the participatory forum, the Malian authorities, with World Bank assistance, have prepared the broad outlines of a cotton sector reform program, as well as a crisis resolution plan for the CMDT.
24. The reform of the cotton sector has the following main objectives: to lower production costs; to establish a market-based pricing mechanism based on free negotiations among economic agents; to strengthen producers' organization so that they can play a more important role in the management of the cotton sector; to strengthen the role of the private sector, producers, and decentralized agencies in developing the sector; and to increase the sector's contribution to the national economy, thereby helping the fight against poverty and improving the standard of living of the population. By 2005, the ultimate goal is to achieve the total liberalization of the cotton sector by opening it up to competition and by privatizing the CMDT.
25. As indicated earlier, delays have been encountered in initiating the studies included in the action plan for liberalizing the cotton sector (see para. 7). The question of the financing for these studies has been resolved. In spite of these delays, the government remains committed to pursuing its policy of liberalizing the sector. The government therefore adopted on October 3, 2001 the amended timetable set forth in the revised letter of development policy for the cotton sector.
26. The measures contained in the government's program for 2001, which had been delayed, have now been rescheduled for the following dates:
Implementation of these measures will constitute the prior actions for the fourth review.
27. For the first half of 2002, efforts will be geared toward (i) preparing and implementing of a plan for the financial restructuring of the CMDT; (ii) launching the program to refocus the CMDT's efforts around agro-industrial activities; (iii) implementing measures that have been identified to strengthen producers' managerial and organizational capacities; (iv) preparing a study for an autonomous region, and completing the terms of reference for opening up the OHVN region, enlarged to incorporate adjacent areas, to the private sector; (v) preparing of a study on steps and options for the complete liberalization of the cotton sector over time (structural benchmark); (vi) implementing a mechanism for the determination of the producer price for seed cotton that reflects movements in international cotton fiber prices and takes account of prices prevailing within the subregion (structural benchmark); (vii) finalizing a study on the modalities for the transfer of extension services; and (viii) ensuring that the CMDT implements a more competitive mechanism—and one that maximize receipts—for marketing cotton fiber for export. Furthermore, an institutional reform of the cottonseed oil subsector will be implemented with the liberalization of the sale price for cottonseed. The cottonseed oil public enterprise, HUICOMA, will be privatized by June 2002 at the latest.
28. In the medium term, the recommendations of the study mentioned in item (v) above will be validated and implemented, with a view to achieving the total liberalization of the sector through the introduction of competition and the privatization of the CMDT. With the support of its development partners, particularly the World Bank, the government will, during the first half of 2002, prepare a detailed work program on the forthcoming stages in the cotton sector reform process.
B. Public Expenditure Management
29. The Malian authorities are continuing to improve public expenditure management. Draft audited budget accounts (lois de règlement) inclusive through 1999 have been submitted to the National Assembly. The draft audited budget accounts for 2000 will be submitted to the National Assembly by June 30, 2002 (structural performance criterion). The goal pursued by Mali in public expenditure management is to move away from an approach based on the review of government expenditures to verify their conformity to regulations, moving instead toward an approach focusing on the effectiveness of expenditures and, thus, on performance assessment. This shift presupposes that information is well managed, comprehensive, and readily available.
30. The Malian authorities' efforts to improve public expenditure management are being pursued in the context of the third structural adjustment credit (SAC III) agreed with the World Bank. In July 2001, the Malian authorities hosted an IMF mission to assess the transparency of government finance, in the context of a Report on the Observance of Standards and Codes (ROSC) and of a report on the country's capacity to track poverty-reducing expenditures. While noting the significant progress achieved in public expenditure management, the IMF mission made a number of recommendations, both with reference to improving budget management and in the context of tracking poverty-reducing expenditures. These recommendations are reflected as follows in the government's work program for 2002:
31. In addition to the measures taken to enhance the effectiveness of expenditures related to poverty reduction, the government, in the context of the SAC III agreed with the World Bank, has decided to embark upon an exercise for the medium-term programming of government expenditure. In support of this process, and reflecting the need for efficiency in the use of HIPC Initiative-related resources, the government will design and implement (in the context of the PRSP) an action plan to enhance governance and transparency in public management. In addition, in the context of the SAC III agreed with the World Bank, the Malian authorities will undertake a functional and technical study to design an integrated information system within the Ministry of Economy and Finance.
C. Other Structural Reforms
32. In order to control the civil service wage bill more effectively over the medium term and improve the efficiency of the civil service, the government will undertake a diagnostic study of medium-term wage policy in the civil service (as part of the process of modernizing the service and harmonizing its pay scales). These reforms will be continued on the basis of the organizational audit of the civil service conducted in November 2001. An action plan for civil service reform must be prepared and discussed with the government's partners during the first half of 2002 (structural benchmark).
33. The Malian authorities achieved significant progress through the implementation of a new mechanism for the taxation of petroleum products on July 12, 2001. This system will allow changes in import prices to be automatically passed through to retail prices. This petroleum product taxation must be made compatible with applicable WAEMU directives.
34. The Malian authorities are determined to persevere in their efforts undertaken in recent years to limit the government's role in the productive sector. Accordingly, the Malian authorities are engaged in a cotton sector reform program, with a view to liberalizing the sector (see paras. 23 to 28). In the transport and telecommunications sector, the main actions will involve granting a cellular telephony license to a private operator and placing the entire Mali-Senegal railroad network under a concession arrangement prior to June 2002. Based on the timetable for completing these tasks, privatization receipts estimated at CFAF 11 billion are expected to be generated in 2002.
VII. Poverty Reduction
35. The preparation of the full PRSP is continuing in the context of a wide-ranging participatory process. The Malian authorities have prepared a report on the status of the preparation of the full PRSP, which is expected to be completed at end-December 2001, following regional consultations scheduled for November 2001 and the adoption of the PRSP by the government.
36. In the meantime, the execution of the program presented in the July 2000 interim PRSP is continuing normally, largely because of the implementation of the ten-year education and health programs (PRODEC and PRODESS) has been successfully accelerated with the provision of HIPC Initiative-related resources. Even though some delays were observed in launching PRODESS on account of the late arrival of anticipated funding from donors and lenders, significant improvements have been recorded in the general public's access to health care through the construction of 599 community health care centers—an outcome that surpassed the PRODESS targets. The Malian authorities will take all necessary steps to safeguard the availability of human resources, as well as to ensure the proper functioning of these health centers through an appropriate incentives policy (particularly in underprivileged areas) and through suitable training and recruitment policies. The share of current resources allocated to health will continue to increase in line with the goals of PRODESS, and recruitment in the health sector will continue, as a minimum, at the rate specified in the context of the program.
37. The results achieved in the education sector are in line with the objectives of PRODEC and have been strengthened through the provision of HIPC Initiative-related resources. To meet the established objectives, particularly through the gradual acceptance of responsibility for a portion of the operating costs of community schools and the strengthening of teacher training, the share of public sector current expenditure devoted to education will increase from 24.9 percent in 2001 to 25.7 percent in 2002 (excluding HIPC Initiative-related resources). The amount allocated to education in the context of the HIPC Initiative is estimated at CFAF 11.2 billion, that is, about 44 percent of the resources expected from debt relief under the HIPC Initiative for 2002.
38. In the wake of the ROSC mission and the ongoing negotiations with the World Bank in the context of SAC III, the Malian authorities have decided to step up the monitoring of resources released by the HIPC Initiative. For the 2002 budget, specific codes have been introduced for current and capital expenditure to ensure that these resources are properly tracked. With respect to the monitoring of actual execution, in addition to the efforts undertaken in the context of the regular activities of the National Directorate of Planning, the Malian authorities (with assistance from the development partners) will undertake independent, targeted audits on a regular basis to ensure optimal utilization of the resources intended for poverty alleviation.
VIII. Performance Criteria and Benchmarks
39. Program execution will be monitored on the basis of the quantitative and structural benchmarks and performance criteria described in detail in Tables 1, 2, and 3 of this memorandum and the attached technical memorandum of understanding.
1 In 2002, the initial projections were estimated at CFAF 512.2 billion, as against forecasts of CFAF 488.1 billion.
Technical Memorandum of Understanding
November 30, 2001
1. This technical memorandum of understanding defines the performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF). It also sets out the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program-monitoring purposes.
2. Unless otherwise indicated, the government is defined as the central administration of the Republic of Mali and does not include local administrations, the central bank, or any other public entity with autonomous legal personality that is not included in the table of government financial operations (TOFE).
3. The definitions of "debt" and "concessional borrowing" for the purposes of this memorandum of understanding are as follows:
II. Quantitative Performance Criteria
A. Ceiling on the Net Credit to the Government and Net Domestic Financing
Definition—net bank credit to the government
4. The net bank credit to the government is defined as the balance between the debts and claims of the government vis-à-vis the central bank and commercial banks. The scope of the net government position is that used by the Central Bank of West African States (BCEAO) and is consistent with established Fund practice in this area. It implies a broader definition of government than that specified in paragraph 2. Claims of the government include the CFA franc cash balance, postal checking accounts, secured liabilities (obligations cautionnées), and all deposits with the BCEAO and commercial banks of public entities, with the exception of industrial or commercial public institutions (EPIC) and public enterprises, which are excluded from the calculation. Government debt to the banking system includes all debt to these same financial institutions. Deposits of the Cotton Stabilization Fund and government securities held outside the Malian banking system are not included in the calculation of the net bank credit to the government.
5. At end-July 2001, net bank credit to the government as defined above stood at CFAF -13.2 billion.
6. The change in the net bank credit to the government at the date indicated is defined as the difference between the stock on the date indicated and the stock at the end of the previous year. This change was CFAF 24.3 billion as of July 31, 2001.
Definition—net domestic financing
7. Starting in June 2002, the key quantitative performance criterion will be net domestic financing of the government, defined as the sum of (i) net bank credit to the government, including the amount of net bank credit to the public treasury, as defined above, and other claims and debts of the government vis-à-vis national banking institutions, and (ii) net nonbank financing of the government, including, in particular, government bills and bonds held outside national banking institutions and proceeds from the sale of government assets.
8. Figures on net bank credit to the government calculated by the BCEAO and nonbank financing is calculated by the public treasury will be used in the context of the program.
9. The ceiling on the change in the net bank credit to the government position vis-à-vis the banking system and net domestic financing will be adjusted if external budgetary assistance exceeds or falls short of the programmed amount. Budgetary assistance is defined as grants, loans, and debt relief (excluding project loans and grants, IMF resources, and debt relief under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative)). The ceiling will be adjusted downward by the amount by which budgetary assistance exceeds the programmed amount. Conversely, the ceiling will be adjusted upward by the amount by which budgetary assistance falls short of the programmed amount. This upward adjustment may not exceed CFAF 3 billion at end-September 2002, CFAF 10.5 billion at end-December 2001, 4 billion at end-March 2002, and 6 billion at end-June 2002. In the context of the program, cumulative external budgetary assistance is expected to reach CFAF 4.3 billion on September 30, 2001, CFAF 43.8 billion on December 31, 2001, CFAF 9.8 billion on March 31, 2002, and CFAF 9.8 billion on June 30 2002.
10. The ceiling on the change in the net domestic credit to the government and net domestic financing will be adjusted by the difference between the amount of unspent HIPC Initiative resources programmed and the actual unspent amount. If the actual unspent amount exceeds (falls short of) the programmed amount, the ceiling will be reduced (increased) by the difference between the actual amount and the programmed amount.
Performance criteria and benchmarks
11. The ceiling on the change in the net credit to the government is established as follows: CFAF 39.9 billion as at September 30, 2001; and CFAF 27.2 billion as at December 31, 2001. The ceiling on the cumulative change in net domestic financing is established as follows: CFAF 16.5 billion as at March 31, 2002; and CFAF 16.5 billion as at June 30, 2002. The ceiling is a performance criterion at end-December 2001 and end-June 2002, and a benchmark as at end-September 2001 and end-March 2002.
12. Provisional data on the net government position, including a detailed list of the bank account balances of other public entities, will be transmitted on a monthly basis within the four weeks following the end of the month. The definitive data will be provided within an additional four weeks after the provisional data have been reported.
B. Nonaccumulation of External Public Payments Arrears
13. External payments arrears are defined as the sum of external payments due and unpaid for external liabilities of the government and foreign debt held or guaranteed by the government. The definition of external debt provided in paragraph 3 applies here.
14. Under the program, the government will not accumulate external payments arrears, with the exception of arrears arising from debt under renegotiation or being rescheduled. The performance criterion on the nonaccumulation of external payments arrears will be monitored on a continuous basis throughout the program period.
C. Nonaccumulation of Domestic Public Payments Arrears
15. Domestic payments arrears are duly certified domestic expenditure commitments for which a payment authorization (dépenses ordonnancées)has been issued but for which payment has not been made within 90 days of the date of the payment authorization. Domestic arrears also include expenditure commitments to public enterprises for which the payment authorization has been issued but for which payment has not been made within the same 90-day period.
16. Under the program, the government will not accumulate domestic payments arrears. This performance criterion will be monitored on a continuous basis.
17. The government will report to the IMF staff any accumulation of domestic arrears as soon as the 90-day deadline is reached. Moreover, the government will minimize payment delays and will provide, at the request of IMF staff, data on expenditure commitments, payment orders, and payments.
D. Ceiling on Nonconcessional External Debt with a Maturity of One Year or More Newly Contracted or Guaranteed by the Government and/or Public Enterprises
18. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00)) but also to commitments contracted or guaranteed for which no value has yet been received.
19. The concept of government for the purposes of this performance criterion includes government as defined in paragraph 2, public institutions of an administrative nature (EPA), public institutions of a scientific and/or technical nature, public institutions of a professional nature, public institutions of an industrial and/or commercial nature (EPIC), and local governments.
20. Until end-2001, in addition to the government, the public enterprises authorized to contract, guarantee or secure nonconcessional borrowing in the context of the program are the cotton company (CMDT), the telecommunication company (SOTELMA), and RCFM. Until end-2001, no other public enterprise shall contract, guarantee, or otherwise secure nonconcessional borrowing.
21. A ceiling is set for nonconcessional borrowing. It relates only to projected borrowing from the West African Development Bank (BOAD), Crédit Commercial de France (CCF), the French Development Agency (AFD), and the Fund of the Economic Community of West African States (ECOWAS). The government and the above-mentioned public enterprises will not contract nonconcessional debt with other creditors. Starting in January 2002, a ceiling of zero is set for nonconcessional borrowing. This performance criterion is monitored on a continuous basis.
22. The government undertakes not to contract or guarantee external debt with a maturity of one year or more and a grant element of less than 35 percent (calculated using the reference interest rates corresponding to the borrowing currencies provided by the IMF). This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00)) but also to commitments contracted or guaranteed for which no value has yet been received. However, it does not apply to financing granted by the IMF and treasury bills and bonds issued in CFA francs on the WAEMU regional market.
23. Information on any borrowing (terms and creditors) contracted or guaranteed by the government and/or the above-mentioned public enterprises shall be transmitted each month within four weeks following the end of the month.
E. Ceiling on Short-Term External Debt Newly Contracted or Guaranteed by the Government and/or Public Enterprises
24. The definitions in paragraphs 16 and 17 also apply to this performance criterion.
25. Short-term external debt is debt with a contractual term of less than one year. Import-related loans and debt-relief operations are excluded from this performance criterion.
26. In the context of the program, the government and public enterprises will not contract or guarantee short-term nonconcessional external debt.
27. As of March 31, 2001, the government of Mali and the public enterprises have no short-term external debt. This performance criterion is monitored on a continuous basis.
III. Quantitative Indicators
28. The program also includes indicators on government tax revenues, the civil service wage bill, and the basic fiscal balance.
A. Floor for Tax Revenues
29. Government tax revenues are defined as those that appear in the government financial operations table (TOFE).
30. Quantitative performance indicators for tax revenues are set at CFAF 202.5 billion at September 30, 2001; CFAF 279.8 billion at December 31, 2001; CFAF 67.5 billion at March 31, 2002; and CFAF 148.0 billion at June 30, 2002.
31. The government shall report tax revenues to IMF staff each month in the context of the TOFE.
B. Ceiling on the Wage Bill
32. The wage bill includes all public expenditure on wages, bonuses, and other benefits or allowances granted civil servants employed by the government, the military, and other security forces, and includes all similar expenditure with respect to special contracts and other permanent or temporary employment with the government. The wage bill excludes, however, wages paid under externally funded projects and transfers to local communities for the payment of teachers' salaries.
33. The quantitative performance indicators for the wage bill are set at CFAF 61.5 billion at September 30, 2001; CFAF 82 billion at December 31, 2001; CFAF 21.8 billion at March 31, 2002; and CFAF 43.6 billion at June 30, 2002.
34. The government shall report the wage bill to IMF staff each month in the context of the TOFE.
C. Floor on the Basic Fiscal Balance, Excluding HIPC Initiative-Related Expenditure
35. The basic fiscal balance is defined as the difference between total revenues, excluding grants and privatization receipts, and total expenditure plus net lending, excluding capital expenditure financed by foreign donors and lenders and HIPC Initiative-related expenditures.
36. The floors for the performance indicators for the basic fiscal balance, excluding HIPC expenditure, are set at CFAF -5.4 billion at September 30, 2001; CFAF 31.6 billion at December 31, 2001; CFAF -14.6 billion at March 31, 2002; and CFAF -43.3 billion at June 30, 2002.
37. The authorities will report monthly to IMF staff, in the context of the TOFE, provisional data on the basic fiscal balance. These data will be taken from the balances of treasury accounts for the items that are used to calculate this balance. The final data will be provided as soon as the final balances for these accounts are available, but not later than four weeks after the reporting of the provisional data.
IV. Structural Criteria and Benchmarks
A. Structural Performance Criteria
38. By December 31, 2001 at the latest, the government will prepare a detailed financial restructuring plan for the CMDT for the period 2002-05 identifying measures to reduce production costs and improve management.
39. By December 31, 2001 at the latest, the government will launch the call for bids for the sale by the CMDT and OHVN of the assets (including ginneries, trucks and other agricultural equipment) for the effective installation of a private sector operator in the zone currently comprising the OHVN, which will eventually be enlarged to incorporate adjacent areas.
40. The government will adopt the audited budget act (lois de règlement) for the year 2000 budget by June 30, 2002 at the latest.
B. Structural Benchmarks
41. By September 30, 2001 at the latest, the government will adopt a plan for the annual allocation of HIPC Initiative resources for the period 2002-05. The plan will be prepared in the context of the poverty reduction strategy.
42. By November 30, 2001 at the latest, a plan will be adopted for the progressive withdrawal by the CMDT from its public service activities (including rural roads, village water supply and irrigation systems).
43. By November 30, 2001 at the latest, preparation of an organization audit of the civil service will be prepared.
44. By November 30, 2001 at the latest, specific codes will be incorporated in the draft 2002 budget (approved by the government) to allow tracking of HIPC Initiative-related expenditures.
45. By December 31, 2001 at the latest, a mechanism will be adopted and implemented for the determination of the producer price for seed cotton that reflects movements in international cotton fiber prices and takes into account producer prices being offered in neighboring countries.
46. By March 31, 2002 at the latest, a study will be completed on the steps and options necessary for the liberalization of the cotton sector (through participation of private operators).
47. By March 31, 2002 at the latest, a plan of action will be adopted for reform of the civil service with a view to modernizing it and unifying the various salary grids.
48. By April 30, 2002 at the latest, a mechanism will be applied for the 2002/03 crop season mechanism that will determine a producer price that reflects movements in international prices and prices in neighboring countries.
49. By June 30, 2002 at the latest, a study will be completed on the modalities to incorporate in the 2003 budget law a budget codification to identify all poverty-related spending.
C. Reporting Deadline
50. Data on the introduction of the structural benchmarks and criteria will be sent to Fund staff within two weeks of the date of their scheduled implementation.
V. Additional Information for Program Monitoring
A. Government Finances
51. The government will provide IMF staff with the following:
B. Monetary Sector
52. The government will submit the following each month, within four weeks following the end of the month, unless otherwise indicated:
C. Balance of Payments
53. The government will provide IMF staff with the following:
D. Real Sector
54. The government will provide IMF staff with the following: