IMF Executive Board Concludes 2008 Article IV Consultation with Mauritania

Public Information Notice (PIN) No. 08/62
May 29, 2008

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 19, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mauritania.1

Background

Mauritania's macroeconomic performance over recent years was satisfactory, despite a steeper-than-expected decline in oil production reflecting persistent technical problems and a difficult external environment. Real non-oil GDP growth is estimated to have increased to 5.9 percent in 2007 driven by a rebound in agriculture and new mining projects. The current account deficit deteriorated, reflecting higher food prices and lower oil exports. Gross international reserves position, however, strengthened to 1.9 months of imports of goods and services at end-December 2007.

The authorities adopted fiscal measures in the 2008 budget to alleviate the social impact of food and petroleum price increases. By end-2007, year-on-year inflation had picked up to 7.4 percent in December from 5.9 percent in September, but was still lower than the 8.9 percent realized in 2006.

All end-December 2007 quantitative and structural performance criteria and benchmarks under the Poverty Reduction and Growth Facility (PRGF) program were met. In particular, the basic non-oil fiscal deficit—excluding foreign-financed spending—reached 2.5 percent of non-oil GDP (compared to 2.9 percent envisaged under the program), reflecting higher-than-expected tax revenues. Poverty-related spending also exceeded the program target as pro-poor spending accelerated in the second half of the year. VAT and custom duties exemptions were eliminated on a list of essential goods; a centralized taxpayer database covering the main cities, Nouakchott and Nouadhibou, was introduced in December. Transparency in the oil sector was further enhanced by the finalization of the audit of the 2006 financial statements of the national hydrocarbon company (SMH) and the publication of oil production sharing contracts. A new mining code setting a clear regulatory and fiscal regime that is favorable to investors was transmitted to parliament.

In the context of limited oil revenue prospects for the next few years, the authorities have engaged in a comprehensive reform agenda to stimulate non-oil growth and reduce poverty in the context of the PRGF-supported program. In particular, they intend to improve infrastructure, enhance competitiveness, promote private sector development, improve fiscal management, fight corruption, maintain macroeconomic stability, and increase government's efficiency in delivering public services. To support their development plan, the authorities successfully organized a consultative group meeting in Paris in December 2007, where they received financial pledges amounting to US$2.1 billion.

Mauritania reiterated its strong commitment to the reform program supported by the PRGF. To mitigate the impact of high international food and petroleum prices and avoid a potential food access crisis, it adopted a comprehensive emergency program, aimed at ensuring food stock availability, developing income-generating activities, and avoiding further utility tariff increases.

Executive Board Assessment

Executive Directors commended the authorities for Mauritania's continued satisfactory performance under the PRGF-supported program. Despite a difficult external environment, non-oil GDP growth has been strong, and sound macroeconomic management has led to a containment of inflation, an improvement in the fiscal stance, and an enhancement of the country's foreign exchange reserves. At the same time, Directors noted that Mauritania's near-term prospects have become more challenging. The immediate priority is to address the social and economic impact stemming from higher food and oil prices. Over the medium term, it will be important to further entrench macroeconomic stability and reduce the economy's vulnerability to limited oil revenue prospects, while accelerating private sector led growth to reduce unemployment and raise living standards.

Directors welcomed the authorities' timely emergency response plan to the potential food access crisis, which aims at ensuring food access and mitigating the impact of high international prices through a set of well-defined measures. They stressed that the one-off measures should be well-targeted to ensure their effectiveness and should not become a permanent burden on the budget. Directors were reassured by the authorities' intention to monitor the situation closely, and were encouraged by their efforts to foster domestic agricultural production and productivity over the longer term.

Directors commended the authorities' prudent fiscal policy and their intention to contain the basic non-oil fiscal deficit in 2008 and beyond. Continued fiscal prudence in the context of a medium-term budget framework will help create the additional fiscal space and investor confidence needed to address the country's development challenges, including by attracting externally-financed investment. Directors welcomed the measures to improve domestic taxation with a view to broadening the tax base, promoting investments, and reducing the share of the informal sector. They were encouraged by the authorities' intention to continue to increase spending on essential capital and poverty-reducing projects, while containing current expenditures.

Directors supported the authorities' prudent monetary policy stance, aimed at controlling inflation in the context of a flexible exchange rate regime. They called for continued vigilance in the face of recent inflationary pressures, including from higher international food prices. Directors noted that the real exchange rate is in line with fundamentals.

Directors emphasized the importance of accelerating structural reforms to foster private sector development, including in sectors with a potential for high value added and job creation. The most significant impediments to growth to be tackled include the limited access to bank financing, the tax regulations burden, poor infrastructure and weak governance. Directors welcomed plans to further modernize the tax and customs administrations with Fund technical assistance, and encouraged the government to sustain efforts to restructure key public enterprises. In particular, they stressed the importance of restructuring the electricity company.

Directors welcomed the authorities' ambitious multi-pronged banking sector reform strategy, in line with the Financial Sector Assessment Program recommendations, which is critical to creating the conditions for higher private sector-led growth. They emphasized the importance of bolstering the weak banks and disposing of the large stock of nonperforming loans. The increased presence of foreign banks is likely to boost competition, and, along with improved banking supervision, should strengthen the financial sector.

Directors encouraged the new government to pursue a prudent debt strategy and debt management framework aimed at further mobilizing concessional support to finance its poverty reduction strategy, including through the delivery by donors of the December 2007 consultative

group meeting pledges. In order to strengthen Mauritania's debt sustainability, they welcomed the authorities' efforts to reach an early agreement with the bilateral creditors that have not yet provided debt relief under the Heavily Indebted Poor Countries Initiative.

Directors encouraged the authorities to continue to strengthen their economic statistics, including debt data, to improve economic decision-making.


Selected Economic and Financial Indicators, 2003-08

  2003 2004 2005 2006 2007
2008
        Prel. Proj. Prel.
Proj.
          EBS/07/126 Est.  

  (Percentage change, unless otherwise indicated)
National income and prices              

GDP at constant prices

5.6 5.2 5.4 11.4 0.9 1.0 5.0

Non-oil GDP at constant prices

5.6 5.2 5.4 4.1 5.7 5.9 5.7

Non-oil GDP deflator

2.5 11.5 18.0 10.1 11.0 13.4 19.0

Consumer price index (period average)

5.3 10.4 12.1 6.2 7.6 7.3 12.5

Consumer price index (end of period)

2.9 16.1 5.8 8.9 7.9 7.4 12.0
               

External sector

             

Exports of goods, f.o.b. (percentage change in US$)

-4.1 38.1 42.2 118.6 -1.8 6.4 38.0

Of which: non-oil

-4.1 38.1 42.2 15.9 42.6 54.0 47.9

Imports of goods, f.o.b. (percentage change in US$)

25.7 70.3 54.7 -18.3 2.7 22.7 25.7

Official transfers (in percent of GDP)

6.9 4.1 5.4 3.4 3.8 2.7 4.4

Current account balance (in percent of GDP)

-13.7 -34.6 -47.2 -1.3 -6.7 -11.4 -6.3

Overall balance (in percent of GDP)

-10.0 -7.3 -4.0 10.5 -0.1 0.6 28.6
               

Official reserves

             

Gross official reserves (in millions of US$, end-period) 1/

32 39 70 194 148 209 330.4

In months of following year's imports of goods and services 2/

0.7 0.6 1.1 2.6 1.8 1.9 2.8
               

Money and interest rates

             

Money and quasi-money

25.5 13.5 14.6 15.7 15.5 18.9 18.4

Currency in circulation

47.5 -3.4 14.8 35.3 -1.2 3.8 16.0
               
  (In percent of non-oil GDP)

Consolidated government operations

             

Revenue and grants

35.4 32.9 26.6 82.5 29.1 30.1 30.3

Revenue and grants (excluding oil)

35.4 32.9 26.6 71.8 25.8 27.2 27.4

Idem, excluding grants

30.7 29.7 24.5 27.1 23.9 24.8 24.3

Expenditure and net lending

47.2 37.7 33.7 36.5 32.1 32.1 34.1

Overall balance including grants

-11.8 -4.8 -7.1 46.0 -3.0 -2.0 -3.9

Overall non-oil balance excluding grants

-16.5 -8.0 -9.2 -9.4 -8.2 -7.3 -9.8

Overall non-oil balance including grants

-11.8 -4.8 -7.1 35.3 -6.3 -4.9 -6.7
               

External debt

             

Nominal external debt (in millions of US$) 3/

2869.1 3151.1 3318.4 2540.9 2667.0 2708.9 2045.4

Nominal external debt (in percent of GDP) 3/

224.9 211.1 178.7 94.1 96.6 96.1 56.4
               

Memorandum items:

             

Ouguiya/US$ exchange rate (end of period)

265.6 256.2 268.6 268.6 ... 252.0 ...

Exports, f.o.b. (in millions of US$)

318 440 625 1,367 1,343 1,454 2,006.7

Imports, f.o.b. (in millions of US$) 4/

468 625 781 847 955 1,145 1,521

Nominal GDP (in billions of UM)

338 397 493 725 724 734 905

Nominal non-oil GDP (in billions of UM)

338 397 493 565 667 679 853

Nominal GDP (in millions of US$)

1,276 1,493 1,857 2,699 2,762 2,819 3,625

Population (in millions)

2.7 2.8 2.8 2.9 3.0 3.0 3.0

GDP per capita (in US$)

474 541 658 933 933 952 1,196

REER (12-month percentage change; end of period)

-10.6 9.6 7.5 -1.3 ... -4.0 ...

Price of oil (US$/barrel): APSP baseline: February 29, 2008

28.9 37.8 53.4 64.3 68.5 71.1 95.5

Annual production of oil (in millions of barrels)

... ... ... 11.2 5.7 5.5 3.9
               

Sources: Mauritanian authorities; and Fund staff estimates and projections.

1/ Excluding oil account.

2/ Excluding oil exploration/production and other mining-related activities, and imports financed by FDI and aid.

3/ Includes both public and private sector external debt. Revised estimates are based on new debt stock data as of 2007 after

HIPC and MDRI debt relief, include estimates for additional new borrowing in 2008 following pledges made at the consultative group meeting.

4/ Excluding oil, copper and gold -related activities, and imports financed by other FDI.


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.



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