Mr. Horst Köhler
International Monetary Fund
Washington, D.C. 20431
Dear Mr. Köhler:
1. The government of Mauritania recently concluded its discussions with the International
Monetary Fund (IMF) staff on the 2001 Article IV consultation and the third
review under the PRGF arrangement. The attached memorandum of economic and financial
policies (MEFP) takes stock of progress in implementing the program in 2000, and sets
objectives and policies for 2001.
2. The government believes that, on the whole, program execution in 2000 was in line
with the objectives. The quantitative performance criteria for end-December 2000 were
met, except for the criteria on the overall budget balance and new non-concessional external
borrowing. Significant progress was made in structural reforms, but a number of performance
criteria and benchmarks were not met for technical reasons, related mainly to delays in finalizing
the preparatory documents and studies, as explained in the attached memorandum. The
government wishes to request waivers for the nonobservance of these criteria, and completion of
the third review under the PRGF arrangement.
4. It is understood that the government will remain in contact with Fund staff and will
consult with the IMF from time to time, on its own initiative or whenever the Managing Director
so requests, regarding Mauritania's economic and financial policies.
Memorandum of Economic and Financial Policies
of the Government of Mauritania for 2001
I. Recent Developments and Performance under the
1. The government of Mauritania believes that the preparation of the Poverty Reduction
Strategy Paper (PRSP) in a broad participatory process was the highlight of 2000. The
PRSP is based on four main pillars: accelerating growth; promoting sectors and areas that would
benefit directly the poor; and developing human resources, and institutions based on good
governance. The policies set out in the PRSP will guide policy setting in the context of
2. Macroeconomic performance held firm in 2000, resulting in a real GDP growth rate
estimated at 5.1 percent and an average inflation rate (CPI) of 3.3 percent. The
current account surplus (including official transfers) was 0.8 percent of GDP. Thanks in
particular to capital inflows generated by the granting of the first cellular phone license to a
foreign consortium (Mattel), the overall balance of payments surplus was US$13 million
and gross official foreign reserves rose to US$283 million, equivalent to about
7 months of imports.
3. The overall budget deficit was at 4.5 percent of GDP, compared to a program target
of 0.5 percent of GDP, largely owing to the shareholder advance that the government
granted to Mauritel after consultation with Fund and Bank staff. Excluding Mauritel, the deficit
was at 0.6 percent of GDP. Tax administration has improved as evidenced by the strong
tax collection efforts made toward the end of the year. The monetary aggregates generally stayed
within the program targets, with broad money and credit to the private sector growing slightly
higher than projected. The gap between the official exchange rate and the parallel rate was held
below 6 percent, and the ouguiya depreciated by about 11 percent against the dollar
and by 3.5 percent against the euro. The real effective exchange rate remained virtually at
its end-1999 level.
4. All the quantitative performance criteria for end-December 2000 were met, except
for the criterion concerning non-concessional external borrowing, because of the loan from the
Arab Monetary Fund (AMF), and the overall budget balance criterion, due to the impact of the
Mauritel operation on the budget, for which a technical modification could have been requested
before the end of 2000 (Table 1). However, in consultation with the
Fund staff, it was decided to request a waiver for this criterion in the context of the third review.
5. Despite delays in implementing some structural reform measures, significant progress has
been made in the following areas: the privatization of Mauritel; continued liberalization of
foreign exchange, especially in relation to surrender requirements for export proceeds (including
mineral exports); and tax system reform, including particularly the unification of the VAT rates
and the elimination of VAT exemptions. However, a number of performance criteria and
structural benchmarks were not met due to difficulties in completing the preparatory work on
time, in view of the large number of structural conditions, and the limited administrative capacity
particularly at a time when efforts were concentrated on the finalization of the PRSP (Table 2).
II. Macroeconomic and Structural Policies for
6. The program targets for 2001 are to increase the GDP growth rate to 5.6 percent
and to keep the inflation rate at 4 percent (compatible with an end-of-period inflation rate
of 2.7 percent). The main sources of this growth are mining, fisheries, construction and
public works, and transport and telecommunications. The current account deficit (including
official transfers) is projected at 7.2 percent of GDP, mainly on account of a rebound in
imports, and is expected to be financed by capital inflows, including Mauritel privatization
proceeds, which will allow gross official reserves to be maintained at six months of
imports. To reach these objectives and those set in the PRSP, the government intends to pursue
the policies described below.
A. Fiscal policy and structural reform in the fiscal
7. Fiscal policy as reflected in the 2001 budget law is still appropriate. Projected
fishing royalties from the agreement with the European Union remain conservative, although the
government anticipates a significant improvement in the financial terms of this agreement. Fiscal
policy will be eased, so that social spending and spending on poverty reduction can be
significantly increased, in line with the priorities identified in the PRSP. The fiscal deficit,
projected at 1.4 percent of GDP, will be financed by concessional external resources,
thereby allowing the government to remain a net creditor to the banking sector. In this
connection, the government will ensure that privatization proceeds are spent on infrastructure or
poverty reduction. However, the government stands ready to adopt any measures required to
maintain macroeconomic stability in case inflationary pressures emerge.
8. The government's priority in the fiscal area will be to strengthen government expenditure
management, as underscored in the PRSP, to improve its effectiveness and ensure proper
targeting. This governance issue is of critical importance to Mauritania, which is benefiting from
debt relief under the enhanced HIPC Initiative. Tracking the use of resources allocated to poverty
reduction requires a set of measures that can be fully implemented only in the medium term.
Nonetheless, the government has already started putting in place monitoring and oversight
mechanisms to ensure that the savings on debt service are used in poverty reduction programs. In
particular, the government has already:
- set up a committee to monitor the execution of projects financed under the enhanced
HIPC Initiative. This committee will identify the use of these resources, project by project, in the
social and poverty reduction areas, and will submit a quarterly report to the IMF and the Bank
one month, at the latest, after the end of each quarter;
- committed to developing a medium-term expenditure framework for priority sectors
(education and health) by end-June 2001, with technical assistance from the World Bank.
The government will also try to expand this framework to other priority sectors (infrastructure,
rural and urban development) by year-end;
- decided, as stated in the PRSP, to put in place the budget execution law, loi de
règlement, for 2001 before submitting the 2003 budget law to
Parliament. To this end, the draft law on clearing expenditures, loi d'apurement, prior
to 2001 will be adopted by the Council of Ministers by end-September 2001. In
addition, the government intends to strengthen the capacities of the Audit Office, cour des
comptes, by supporting professional training, to enable it to better exercise its functions in
supervising and monitoring government finances;
- decided to establish in the medium term a transparent management of government
finances, in particular by computerizing the expenditure chain to allow step-by-step monitoring.
To this end, the government aims (as stated in the PRSP) at putting in place a number of
preparatory measures, including establishing the nomenclature of required supporting
documentation by June 2001, the computerization of the payroll in
September 2001, and the preparation of the bidding document for the computerization of
expenditure on goods and services before year-end.
9. Consistent with its commitments, the government brought the SNIM under the common
tax law for VAT in the context of the 2001 budget law, except for capital equipment used
exclusively in mining activities. However, given the non-deductibility of the VAT on diesel oil,
which is used intensively in mining operations, the government has also decided to lower the rate
of the Turnover Tax (TCA) from 10 percent to 9.5 percent by
end-March 2001, to avoid any major increase in the tax burden on SNIM.
10. The government reiterates its commitment to amend the current investment code in
consultation with the World Bank and the IMF staff in the context of the 2002 budget law.
The amendments will ensure that all investment tax incentives are incorporated in the common
tax regime to make investment incentives more transparent and improve the business sector
environment for increased private sector participation. The government will inform companies
currently requesting exemptions under the current code that they will be automatically subject to
the common tax law beginning January 1, 2002, with all new tax breaks strictly
limited to 2001, without retroactive effect or a grand fathering clause. Any additional cost
of these tax incentives on the budget in 2001 will be offset by fiscal measures to ensure
that the overall budget deficit remain on target.
B. Monetary and banking sector policies
11. Monetary policy in 2001 is aimed at keeping low inflation while allowing
sufficient credit to the private sector. In this regard, the growth of money supply is targeted at
about 11.5 percent and credit to the economy at 18.2 percent. The central bank will
take advantage of the recent development of new indirect monetary policy instruments, especially
the introduction of the repo agreement and the short-term reverse repos facility in
February 2001, to better manage liquidity and the conduct of monetary policy. Also, more
frequent (bi-weekly and daily) liquidity forecasts and closer monitoring of reserve requirements
and excess reserves of the banking system should improve liquidity management significantly.
12. Although the BCM has committed to reducing the concentration ratios in commercial
banks, and in spite of the significant progress made in this area, this has proved more difficult
than expected. The difficulty is due to the limited number of creditworthy borrowers in the
economy, to the extent that compliance with the concentration limits set under the program could
affect adversely economic growth. Furthermore, requesting an increase in commercial banks'
capital cannot be justified solely on the grounds of reducing concentration limits. This said, the
BCM decided to set more realistic targets in the context of individual programs, contrats
programmes, to be signed with banks by end-June 2001, following a detailed
assessment of their balance sheets. The BCM is determined to reinforce its banking supervision
unit and has already requested technical assistance from the Fund.
13. In view of the importance of government deposits in commercial banks
(30 percent of all deposits in 2000) and the problems these deposits could cause for
liquidity management and monetary policy in general, the government intends to transfer
gradually these deposits to the central bank. To avoid creating liquidity and solvency problems
for some banks, this transfer will have to be completed in the medium term. This issue will be
discussed with future Fund missions to agree on a transfer schedule. Meanwhile, the BCM will
impose as of May 1, 2001 the same reserve requirement rates on government
deposits as on private deposits. Furthermore, with the authorization for residents to open foreign
currency deposit accounts beginning in 2001, the BCM will, in accordance with current
regulations, impose beginning May 1, 2001 the same reserve requirement rate (in
foreign exchange) on these deposits.
C. Exchange rate policy
14. Consistent with the objective set in the PRSP, exchange rate policy should focus on
maintaining external competitiveness to promote diversification of the economy and reduce its
vulnerability to external shocks. Consequently, the BCM will ensure that the ouguiya does not
appreciate in real terms on a sustained basis. Improvements will also be made in the operation of
the foreign exchange market. The BCM undertakes to:
- encourage banks' participation in the Extended Exchange Market (MCE)
sessions. The BCM will not perform any exchange transactions with commercial banks outside
these sessions, including for the purpose of travel allocations. The BCM will also ensure that the
penalty on the open foreign exchange position is applied strictly, to force banks to come to the
MCE more often to keep their foreign exchange positions within the authorized limits.
- raise the ceiling on exchange bureaus' participation limits in the MCE from US$10,000
to US$20,000. At the same time, the ministry of finance will amend Circular No.14 to authorize
exporters to move freely their export proceeds deposited in domiciliation accounts, while
remaining in compliance with prevailing exchange regulations;
- encourage SNIM to meet progressively its needs for ouguiya in the MCE through its
commercial banks. The BCM will not then be the only source of foreign exchange on the market;
- reduce, as a first step, the margin between its buying and selling rates from
1.5 percent to 1 percent and pursue its efforts to progressively reduce the gap
between the official and the parallel market rates;
- eliminate by end-June 2001 SNIM's remaining surrender requirements to the
BCM on its repatriated export proceeds.
Furthermore, the government is committed to eliminate the statistical visa of the BCM by
end-March 2001. The statistical monitoring of exports will be ensured by the Direction
Générale des Douanes.
D. External sector
15. The government is committed not to make any further drawings on its non-concessional
loan contracted in 2000. In addition, the government will endeavor to obtain the best
terms possible from the African Development Bank (AfDB) on SNIM's loan, given its
importance for expanding SNIM's production capacity, and its implication for growth and
poverty reduction--especially in light of the European Investment Bank (EIB) recent efforts to
make its loan (which co-finances this project) concessional.
16. The government will pursue a prudent external debt policy and will not borrow on
non-concessional terms. The BCM will also attempt to get debt relief from non-Paris club
members on terms similar to those granted by the Paris club. In addition, the authorities are
committed to service their external debt on a timely basis to avoid any accumulation of external
arrears. Finally, the BCM intends to improve the management of its reserves to ensure a
reasonable yield with minimum risk.
III. Other Structural Reforms
17. Regarding structural reforms:
- a number of preparatory steps have been taken regarding the privatization of
SONELEC, including the adoption of the electricity code, the law on privatization, and the law
on multisectoral regulation. The water code should be discussed with users before it can be
finalized. With the assistance of the World Bank, the government expects the bidding document
to be ready by end-June 2001, pre-qualification completed by end-September 2001,
and privatization by end-December 2001.
- significant progress has been made in reconciling customs data with the SGS. This
monthly reconciliation process will be completed by end-April 2001.
- the communal tax reform will be discussed in the context of the World Bank's urban
development project, and in consultation with Fund staff.
- the new government procurement code has been drafted and commented on by the
World Bank. The revised code will be adopted by end-May 2001. The study on the
reorganization of land transport has been completed and the decree for its implementation will be
signed by April 2001.
IV. Program Monitoring
18. The quantitative performance criteria for end-June 2001 are: (i) net domestic
assets of the BCM; (ii) net official international reserves of the BCM (this replaces the
performance criterion on net foreign assets of the BCM); (iii) net domestic financing of the
budget (this replaces the previous performance criterion on the overall budget balance); (iv)
medium- and long-term non-concessional external debt contracted or guaranteed by the
government or the central bank; and (v) external payments arrears (Table 3). The performance criterion on non-accumulation of
arrears on public or publicly guaranteed debt would still apply on a continuous basis. The
performance criterion on arrears on medium- and long-term external public debt is proposed to
be deleted since all arrears have been cleared. Quantitative indicators for these variables and for
the monetary base and tax revenue have been set for end-September and
end-December 2001. A detailed description of these criteria is included in the attached
technical memorandum of understanding.
19. The structural performance criteria (Table 4) are: (i)
the elimination of SNIM's surrender requirements of its repatriated export proceeds to the BCM
by end-June 2001; (ii) the preparation of a medium-term expenditure framework
for the priority sectors with the assistance of the World Bank by end-June 2001;
(iii) the adoption by the Council of Ministers of the draft law on clearing expenditures,
loi d'apurement, for fiscal years prior to 2001 by end-September; and (iv) the
adoption by the Council of Ministers of the draft law amending the investment code by
end-November 2001. Structural benchmarks have also been set for the completion of a
nomenclature of required supporting documentation of expenditure (end-June 2001) and
the signing of program contracts between the BCM and the commercial banks, providing a
timetable for compliance with the risk concentration ratios (end-June 2001).
20. The fourth review under the PRGF arrangement is expected to be completed by
end-October 2001, and will examine observance of end-June 2001 performance
criteria. The remaining disbursements under the arrangement will depend on the completion of
the fifth and sixth reviews, and on the observance of performance criteria that would be set
during the fourth review. Use the free Adobe Acrobat Reader to view MEFP Tables
Technical Memorandum of Understanding
1. This memorandum sets out the definitions of the quantitative performance
criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility
(PRGF). It also establishes the content and frequency of the data to be provided for monitoring
the program. The government is defined to include only the central government and excludes the
social security scheme.
I. Performance Criteria
2. Net official international reserves (NIR) of the Central Bank of
Mauritania (BCM) is defined as the unencumbered (i.e., readily available) gross official
reserves of the BCM less foreign liabilities of the BCM. For purposes of monitoring performance
against the program target for NIR, valuation effects on the stock of gold holdings will be
excluded, and gold holdings will be evaluated at the gold price in effect on
December 31, 2000. Similarly, the U.S. dollar value of gross international
reserves and foreign liabilities will be converted into ouguiya (UM) at the exchange rate of
December 31, 2000. The exchange rates of the SDR and non-dollar
currencies will be kept at their end-December 2000 levels. All required adjustments will
be calculated at these program exchange rates.
3. Net domestic assets (NDA) of the BCM are defined as reserve
money minus net foreign assets of the BCM, adjusted for valuation changes arising from the
difference between the program and the actual exchange rates.
4. Net domestic financing of the budget (NDF) is defined as the sum
of net bank and nonbank financing of the government. Net bank financing is the net credit to the
government from the banking system (NCG), defined as claims on the government less deposits
of the government with the banking system.
5. The contracting or guaranteeing of nonconcessional external debt
by the government and the Central Bank of Mauritania includes foreign currency debt contracted
or guaranteed by the government or the Central Bank of Mauritania with a grant element (NPV
discount relative to face value) of less than 35 percent, based on the currency- and
maturity-specific discount rates reported by the OECD (commercial interest reference rates). This
performance criterion applies not only to debt as defined in point No. 9 of the Guidelines
on Performance Criteria with Respect to Foreign Debt (August 24, 2000) as shown
in the annex but also to commitments contracted or guaranteed for which value has not been
received. Although this definition excludes borrowing by public enterprises (without government
guarantee), such borrowing should be avoided except in exceptional circumstances (like in the
case of SNIM), and after consultations with the Fund staff.
6. External payments arrears are defined as the stock of external
arrears on debt contracted or guaranteed by the government or the central bank, excluding debts
subject to rescheduling or debt forgiveness. This performance criterion applies on a continuous
II. Quantitative benchmarks
7. Reserve money is defined as the sum of: (i) currency in circulation
(currency outside banks and commercial banks' cash in vaults); and (ii) deposits of commercial
banks at the central bank. Required adjustments of bank foreign currency deposits at the central
bank will be evaluated at the program exchange rates.
8. Tax revenue is defined as the sum of all taxes on goods and
services and income, and taxes on international trade.
III. Program Adjusters
9. The NIR, NDA, and NDF targets are defined based on the assumption of
projected cumulative amounts of external cash debt service payments, program related financing
(loans and grants), the amount of the fixed part of the fishing royalties from the European Union
(EU), and privatization proceeds to the budget, as determined in the attached table.
10. In cases where total external cash debt service payments
exceed (fall short of) the target, the floor for NIR will be adjusted downward (upward) and the
ceiling on NDA will be adjusted upward (downward) by the amount of any excess over (shortfall
from) the target.
11. In cases where program related financing or the fixed part of
the fishing royalties from the EU exceeds (falls short of) their targets, the floor for NIR will
be adjusted upward (downward) and the ceiling on NDA will be adjusted downward (upward) by
the amount of any excess over (shortfall from) the targets. Any downward adjustment to NIR
resulting from the shortfall in program related financing will be limited to US$10 million,
and from the shortfall in fishing royalties to the U.S. dollar equivalent of € 5 million. Any upward adjustment to NDA resulting from the shortfall
in program related financing will be limited to ouguiya equivalent of US$10 million, and
from the shortfall in fishing royalties to ouguiya equivalent of € 5 million.
12. In cases where government external cash debt service
payments exceed (fall short of) the target, the ceiling on NDF will be adjusted upward
(downward) by the amount of excess over (shortfall from) the target. NDF will also be adjusted
downward (upward) by the amount of any excess (shortfall) of either program related financing
or the fixed part of fishing royalties from the EU over (from) their respective targets. Any upward
adjustment to NDF resulting from the shortfall in program related financing will be limited to the
UM equivalent of US$10 million, and from the shortfall in fishing royalties to US dollar
equivalent of € 5 million. In addition NDF will be adjusted
downward (upward) by the amount of any excess (shortfall) of privatization proceeds over (from)
the program target.
IV. Provision of Information to the Fund
13. To permit the monitoring of developments under the program, the
Government will provide to Division D of the Middle Eastern Department the information
- Weekly data on every foreign exchange market session held at the
Central Bank of Mauritania at the end of each week
- Weekly data on BCM's gross foreign exchange reserves, within two weeks of
the reference period
- Data on treasury bills auctions following each auction.
- Monthly monetary statistics and monetary data including the outstanding stock
of treasury bills by holder, balances in the "comptes d'affectations spéciales"
of the treasury at the central bank (by individual account), interest rates on central bank
- Monthly consumer price index, custom import data, iron ore and fish exports
and data on SNIM monthly operations.
- Monthly data on summary budget operations, revenues, expenditures, and
financing items, including data on the execution of the investment budget, with details on the
foreign financed part and the budgetary counterpart funds on which donor's conditions apply.
- Monthly data on foreign grants and loans received by government and by
public enterprises by creditor and by currency of disbursement.
- Monthly data on external debt developments including arrears and
- Monthly list of medium- and long-term public or publicly guaranteed external
loans contracted during each month, identifying, for each loan: the creditor, the borrower, the
amount and currency, the maturity and grace period, and interest rate arrangements.
- Quarterly data on the outstanding stock of external debt by creditor, by debtor
and by currency.
- Quarterly, the report of the "Comité de Suivi"of HIPC
related expenditures, within a maximum period of one month after the end of each quarter.
14. The monthly and quarterly data listed above should be sent within a period
of no more than five weeks after the end of the month or quarter reported, unless otherwise
noted. Any revisions to previously reported data should be promptly communicated to the staff
and adequately explained.