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Public Information Notice (PIN) No. 04/1
January 12, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes 2003 Article IV Consultation with Mali

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2003 Article IV consultation with Mali is also available.

On December 15, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mali.1

Background

Since the early 1990s, Mali has been implementing reforms supported by the Fund through successive Enhanced Structural Adjustment Facility (ESAF) and Poverty Reduction and Growth Facility (PRGF) arrangements.2 The last PRGF arrangement with Mali was approved in August 1999 in support of a program covering the period 1999-2002. The arrangement, whichwas later extended by one year, expired on August 5, 2003. In early March 2003, the Executive Boards of the IMF and World Bank, respectively, decided that Mali had fulfilled the conditions for reaching the completion point under the enhanced Initiative for Heavily Indebted Poor Countries Initiative (HIPC), and that the poverty reduction strategy paper (PRSP) included an appropriate analysis of poverty in Mali as well as strategies to alleviate it. Paris Club creditors agreed to reduce Mali's debt stock on March 12, 2003. Total debt relief is estimated at US$417 million in net present value (NPV) terms, of which the Fund will provide US$45.2 million (SDR 34.7 million).

Mali's macroeconomic performance has been satisfactory in 2002 and 2003, in spite of the adverse impact of the crisis in Côte d'Ivoire and large fluctuations in agricultural output owing to uneven rainfalls. Real GDP growth slowed to 4.4 percent in 2002 from 13.3 percent in 2001 as declines in food production, trade, and transportation were partly offset by a record output in gold mining. Growth is expected to slow further to 3.2 percent in 2003, even though agricultural production is projected to rise by 10.9 percent on account of the very good rainfall recorded in the second half of the year. This outcome has contributed to reducing inflation to less than 1 percent in 2003 from 5.0 percent in 2002. The external current account, excluding official transfers, narrowed to 5.8 percent in 2002 by 6.7 percentage points of GDP, owing to a sharp increase in gold and cotton exports and a decline in imports (the latter in response to the completion of projects related to the African Soccer Cup). However, in 2003, the current account deficit is expected to widen anew by 3 percentage points largely because of the fall in the volume of gold and cotton exports. Since end-2001, the real effective exchange rate has appreciated by 4 percent, reflecting the depreciation of the U.S. dollar against the euro, to which the CFA franc is pegged.

Fiscal performance has been broadly satisfactory in 2002 and 2003, although revenue collection has weakened since the end of 2002, owing to the impact of the crisis in Côte d'Ivoire. The overall fiscal deficit, excluding grants, is projected to rise by 1 percentage point of GDP to 8.2 percent in 2003, with total government revenue and expenditure rising to 17.2 percent of GDP and 25.4 percent, respectively. The increase in expenditure--equivalent to 1.5 percentage points of GDP--is mostly due to higher capital outlays.

Monetary policy, conducted at the regional level by the Central Bank for West African States (BCEAO), has remained prudent. The BCEAO reduced the discount rate by 150 basis points to 5.0 percent between July and October 2003 as a response to the fall in inflation, the decline in interest rates in the euro area, and the high level of international reserves. However, the measure is unlikely to have a major impact on bank lending in the short run since commercial banks have maintained a high level of free reserves for some time.

There has been further progress in the implementation of structural reforms since 2002. Improvements in public expenditure management make it possible to monitor the budget spending that contributes to poverty reduction. At the same time, the authorities have strengthened medium-term budget programs and prepared medium-term expenditure frameworks for health and education. On the cotton sector, the authorities have streamlined the operations of the public enterprise (CMDT) and reached agreement with the World Bank and other bilateral and multilateral development partners on a timetable for splitting the CMDT into three or four private enterprises. As regards the privatization program, the authorities signed a concession contract with a private enterprise that will manage the railroad company, RFCM; a tender was launched for the management of Mali's airports; and the authorities are discussing the terms of the privatization of the cottonseed oil-producing company HUICOMA with the successful bidder.

The authorities agreed with the thrust of the staff's assessment of performance under past Fund-supported programs. The main conclusion is that important progress was made in restoring macroeconomic stability, laying the foundations for sustainable growth, and reducing poverty. Nevertheless, in spite of this progress, Mali, as a landlocked country in the Sahel region, faces many challenges and remains vulnerable to exogenous shocks, including inclement weather conditions, terms of trade fluctuations, and a difficult regional political environment. The authorities noted that, after more than 20 years of heavy government intervention in the economy, Fund-supported programs had helped to reduce external and internal imbalances and opened the economy to private sector initiatives. As the reform agenda is unfinished, they viewed a new formal agreement with the Fund as an essential element to help them move the process forward and mobilize foreign financial assistance.

Executive Board Assessment

Executive Directors welcomed the opportunity to review Mali's performance under Fund-supported programs since 1992. They agreed that during this period important progress was made by the authorities with respect to macroeconomic management and implementation of structural reforms, which has helped strengthen Mali's economic performance and lay the basis for sustained growth and poverty reduction. However, Directors considered that Mali continues to face serious challenges, including its vulnerability to exogenous shocks and the impact of the crisis in Côte d'Ivoire.

Directors welcomed the work done by the staff to identify key policies to address these challenges, based on its review of Mali's long-term performance under Fund-supported programs. The priorities include consolidating the fiscal position, bolstering competitiveness and diversifying the economy, and enhancing the business climate-including through privatization and improved governance-in order to spur growth and reduce poverty. Looking ahead, Directors noted the favorable prospects for 2004, especially if the regional security situation stabilizes, with stronger domestic demand expected to be underpinned by higher output and prices of agricultural commodities, notably cotton. They urged the authorities to use the opportunity provided by the favorable outlook to press ahead with the implementation of the above-mentioned policies.

Directors commended the authorities for their actions to strengthen fiscal performance, noting that fiscal objectives for 2003 appear likely to be met, despite domestic and external budgetary pressures. They called on the authorities to stay the course of fiscal consolidation and adopt measures to ensure that the 2004 fiscal targets are attained. These measures should center on strengthening revenue performance by reducing tax exemptions, reining in the growth of public sector wages as well as of expenditure not directly related to poverty reduction, and reforming the civil service retirement scheme. Directors expressed concern about the initial medium-term projections, which suggest a possible widening of the fiscal deficit and an increase in debt. To protect against these vulnerabilities, Directors called for continued efforts to reduce the fiscal deficit, monitor the debt burden closely, and increase reliance on external grants.

Directors welcomed the marked decline in inflation in Mali, and the recent lowering of interest rates by the Central Bank for West African States (BCEAO). Directors noted that Mali's financial institutions generally comply with prudential norms. They expressed concern, however, about the high level of nonperforming loans. Directors urged the authorities to continue to strengthen the legal and regulatory framework for the financial system and to promote financial deepening. In this context, they welcomed the authorities' plans to privatize the commercial banks, and urged the further development of microfinance institutions in rural areas. While welcoming Mali's recent efforts in the area of combating the financing of terrorism, some Directors also called for further strengthening of the effectiveness of the AML/CFT regime.

Directors emphasized the need for ongoing implementation of the wide-ranging agenda of structural reforms. In order to meet the objectives of promoting economic diversification and improving the environment for private investment, the authorities will need to give high priority to developing infrastructure, streamlining the regulatory framework, improving governance and the judicial system, and enhancing labor productivity. In this connection, Directors looked forward to the planned Investment Climate Assessment to be undertaken with the assistance of the World Bank.

Directors underlined the importance of reforms in the cotton sector. They welcomed the decision to split the cotton monopsony (CMDT) to help increase competition in the sector over the medium term. Given the importance of the cotton sector, Directors encouraged the authorities to proceed with the implementation of these plans in a careful and orderly manner. A few Directors noted the adverse effects on Mali of subsidies to the cotton sector in some industrialized countries, and cuts in this support were called for.

While Mali's economic data are generally satisfactory for surveillance purposes, Directors encouraged the authorities to continue to improve the quality and timeliness of national accounts data in line with the recommendations of the recent multi-sector mission from the Statistics Department of the Fund.

Looking ahead, Directors concurred that further financial support in the form of a low-access PRGF arrangement offers the best prospect for assisting the authorities to implement the remaining reform agenda and tackle the enormous challenges still facing Mali. However, a few Directors noted that the projected balance of payments surplus over the medium term and increased donor support raised questions about the need for further Fund financial assistance, and urged the consideration of other forms of Fund involvement.


Table 1. Mali: Selected Economic and Financial Indicators, 2000-06


 

2000

2001

2002

2003
Proj.


2004

2005

2006

       

EBS/03/92

Old GDP 1/

Rev. GDP 1/

Projections


 

(Annual percentage change, unless otherwise indicated)

                   

National income and prices

                 

Real GDP

-3.2

13.3

4.4

-1.1

-0.4

3.2

4.9

5.0

5.7

Nominal GDP (in billions of CFA francs)

1,899.4

2,210.5

2,344.8

2,252.5

2,239.1

2,487.1

2,660.0

2,859.4

3,085.3

GDP deflator

9.2

2.7

1.6

3.8

2.4

2.8

2.0

2.3

2.1

Consumer price index (annual average)

-0.7

5.2

5.0

3.8

0.5

0.5

2.5

2.5

2.5

External sector

                 

Exports, f.o.b.

9.2

36.9

18.9

-7.3

-8.0

-8.0

5.7

3.0

4.9

Imports, f.o.b .

13.1

27.7

-7.4

2.2

3.4

3.4

4.2

6.2

6.7

Export volume

-1.1

24.8

29.2

-11.5

-14.0

-14.0

5.5

1.4

3.0

Of which: nonmining

-7.4

-23.1

40.3

-9.7

-16.2

-16.2

25.9

10.3

2.3

Import volume

1.7

29.8

8.5

0.9

1.8

1.8

3.9

6.1

5.8

Terms of trade

-0.7

2.3

3.0

2.9

5.3

5.3

-0.9

0.6

0.4

Nominal effective exchange rate (average)

-4.3

3.2

1.5

...

...

...

...

...

...

Real effective exchange rate (average)

-7.4

3.7

4.9

...

...

...

...

...

...

Central government finance

                 

Total revenue

-1.0

18.6

21.3

10.2

10.2

10.2

12.3

6.3

10.2

Total expenditure and net lending 2/

-0.5

14.1

17.5

13.3

13.3

13.3

9.4

6.2

7.8

Current expenditure

2.6

39.7

10.3

0.2

4.5

4.5

14.2

6.8

8.2

Capital expenditure and net lending 2/

-2.8

-9.7

27.8

26.8

24.2

24.2

4.4

5.6

7.3

Money and credit

                 

Credit to the government 3/

-4.2

4.6

-1.8

2.6

2.6

2.6

-3.1

...

...

Credit to the rest of economy

-2.4

19.0

21.6

9.0

10.5

10.5

18.3

...

...

Broad money (M2)

11.9

19.3

28.4

10.9

15.4

15.4

11.9

...

...

Velocity (GDP/M2)

4.7

4.0

3.7

3.2

3.1

3.4

3.3

...

...

Interest rate (in percent; end of period) 4/

6.5

6.5

6.5

...

...

...

...

...

...

                   
 

(In percent of GDP, unless otherwise indicated)

Investment and saving

                 

Gross domestic investment

22.5

27.2

20.3

20.5

20.3

22.3

22.0

22.0

21.9

Government

8.0

6.4

7.4

9.4

9.3

8.2

8.4

8.6

8.6

Nongovernment

14.5

20.8

12.9

11.1

11.0

14.2

13.6

13.4

13.3

Gross domestic saving

11.6

17.5

19.0

17.1

17.0

17.3

17.5

17.1

16.8

Government

0.8

-0.3

0.6

2.5

2.4

0.7

0.7

0.8

1.3

Nongovernment

10.8

17.8

18.4

14.7

14.6

16.5

16.8

16.3

15.6

                   

Central government finance

                 

Total revenue

14.2

14.5

16.6

19.0

19.1

17.2

18.1

17.9

18.3

Total expenditure and net lending 2/

21.9

21.5

23.8

28.1

28.2

25.4

26.0

25.7

25.7

Overall balance (payment order basis, including grants)

-2.9

-3.2

-3.6

-5.4

-4.3

-3.9

-5.1

-5.2

-4.7

Overall balance (payment order basis, excluding grants)

-7.7

-7.0

-7.2

-9.1

-9.1

-8.2

-7.9

-7.8

-7.4

Basic fiscal balance 5/

-0.7

-1.7

-1.3

-1.3

-1.3

-1.1

-1.1

-1.2

-0.7

Basic fiscal balance 6/

-0.6

-0.2

0.1

0.3

0.3

0.2

0.1

-0.2

0.2

                   

External sector

                 

Current external balance, including official transfers

-9.5

-10.3

-4.3

-7.4

-7.2

-6.5

-6.5

-6.3

-6.4

Current external balance, excluding official transfers

-11.9

-12.5

-5.8

-8.2

-10.3

-9.2

-7.3

-7.0

-7.1

Debt-service ratio 7/

                 

Before debt relief

12.8

9.9

9.9

11.6

12.1

12.1

10.7

10.1

9.6

After debt relief

12.2

6.3

6.2

7.6

7.8

7.8

6.5

6.1

5.7

Overall balance of payments (in millions of US dollar)

39.2

-44.8

138.2

-62.7

52.3

52.3

-116.7

-128.9

-96.4

Gross international reserves (in millions of US dollar)

381.3

348.9

594.5

680.7

811.2

811.2

853.6

896.6

940.3

(In months of next year's imports) 8/

3.8

3.9

6.0

5.9

7.0

7.0

7.0

6.9

6.7

Exports of goods

20.4

24.0

26.9

26.9

26.0

23.4

23.1

22.1

21.5

Imports of goods

22.2

24.4

21.3

22.6

23.0

20.7

20.2

20.0

19.7

U.S. dollar exchange rate (end of period)

705.0

744.3

625.5

...

...

...

...

...

...


Sources: Malian authorities; and IMF staff estimates and projections.

1/ The two columns differ because the authorities revised their GDP methodology to be consistent with the West African Economic and Monetary Union (WAEMU) and System of National Accounts (SNA) 1993 methodology.

2/ Including capital outlays financed through external aid and transfers to the local authorities; data on payment order basis.

3/ Change in percent of broad money at the beginning of the period.

4/ End-of-period interest rate on the West African Monetary Union money market.

5/ Defined as total revenue minus total expenditures and net lending, excluding foreign-financed investment.

6/ Defined as footnote 5 above, but also excluding HIPC Initiative-related expenditure.

7/ In percent of exports of goods and services.

8/ Of goods and services.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.
2 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper. 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. PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5½ year grace period.



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