IMF Executive Board Concludes 2009 Article IV Consultation with Mauritania

Public Information Notice (PIN) No. 10/40
March 22, 2010

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 March 15, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mauritania.1

Background

Economic performance deteriorated sharply in 2008-09 on the back of both domestic and external shocks. The global food and fuel price increases weakened the fiscal and external positions and pushed up inflation, while domestic political crisis led to a significant reduction in external assistance. The global economic slowdown contributed to further fiscal and balance of payments pressures, mainly through the decline in prices and demand for Mauritania’s main export commodities (iron, copper, and fish). Furthermore, the anticipated shift to an oil economy did not materialize, as oil output continued to fall steadily, lowering the country’s expectations, and heightening the need for more external aid.

Reflecting these multiple shocks, non-oil real GDP growth is estimated at -0.9 percent in 2009, down from 4.1 percent in 2008. Oil output continued to decline and overall GDP would contract by about1 percent. Inflation has remained in the low single digits (5 percent in 2009), thanks to a somewhat prudent monetary policy stance and low international fuel and food prices. Broad money grew at 15.2 percent while private sector credit growth slowed down to about 4 percent in 2009. With slumping economic activity and a benign inflation outlook, the monetary authorities reduced the central bank policy rate from 12 to 9 percent in November 2009 but real interest rates remained positive. The effective exchange rate depreciated by 3 percent in nominal terms and 2 percent in real terms.

The basic non-oil fiscal deficit increased to 7.7 percent of non-oil GDP in 2008, up from 2.2 percent in 2007. Spending adjustment efforts have not kept pace with declining revenue and the basic non-oil fiscal deficit, although lower, would still be high in 2009, reaching 5.3 percent of non-oil GDP.

The current account deficit is estimated at 12.7 percent in 2009, down from 15.7 percent in 2008, as lower food and fuel prices and the normalization of relations with the international community have helped cushion the impact of the global economic slowdown. Gross international reserves reached about US$238 million at end-December 2009, the equivalent of 2.2 months of imports of goods and services.

In the short term, the authorities need to limit the fallout from recent shocks, including the global economic slowdown, and restore growth while ensuring macroeconomic stability. The peaceful completion of the presidential election has established a strong basis for resumption of the reform agenda and of the financial support from the international community. An appropriate macroeconomic policy mix will support the recovery while containing inflationary pressures. Looking forward, the authorities need to sustain high and diversified growth in order to boost employment and further reduce poverty.

Executive Board Assessment

Executive Directors observed that the return of constitutional order to Mauritania has established a basis for the resumption of the reform agenda and of financial support from the international community.

Directors noted that Mauritania’s macroeconomic situation weakened in 2008-09 owing to the global economic downturn and the domestic political crisis. However, the economy is projected to rebound in 2010 driven by strong activity in the non-oil sector. Directors stressed that sustaining high economic growth over the long term will require sound macroeconomic policies and broad-based structural reforms to promote private sector development and increase the resilience of the economy to external shocks.

Directors considered fiscal consolidation to be a high priority. They agreed that the 2010 budget strikes the right balance between supporting the recovery, increasing social and infrastructure spending, and restoring fiscal prudence.

Directors underscored that medium-term fiscal sustainability will hinge on further broadening the revenue base, strengthening tax and customs administration, containing the wage bill, and reducing nonessential recurrent spending, including untargeted subsidies. They encouraged the authorities to implement decisive measures to improve expenditure management, restructure the state-owned enterprises, and strengthen the debt management framework.

Directors supported the gradual easing of monetary policy. They underscored that any further monetary easing should be undertaken cautiously, and that the authorities should stand ready to increase the policy rate as signs of inflationary pressures emerge.

Directors stressed that greater exchange rate flexibility will facilitate the adjustment to external shocks. They welcomed the reestablishment of the foreign exchange auction system and the authorities’ commitment to a flexible exchange rate. Directors noted staff’s assessment that the real effective exchange rate is broadly in line with economic fundamentals and supported the authorities’ intention to limit intervention in the foreign exchange market to smoothing out excessive volatility.

Directors encouraged the authorities to pursue their multi-pronged banking sector reform strategy to further strengthen the financial sector, and enhance banking intermediation. They urged the authorities to reduce the high level of nonperforming loans. A sound banking system, together with well-sequenced reforms to improve the business environment and address electricity supply bottlenecks, is important to promote a broad-based private sector-led growth.

Directors stressed the importance of increased donor support on concessional terms to address Mauritania’s short-and medium-term financing needs. They welcomed the authorities’ plans to convene a donors meeting during 2010. Directors encouraged the authorities to accelerate efforts to conclude bilateral negotiations with the remaining non-Paris Club creditors on terms comparable with those granted by the Paris Club creditors.

Directors commended the authorities’ commitment to protect poverty-related spending. They highlighted the need to expand and strengthen safety nets and social protection. In this regard, Directors welcomed the authorities’ plan to launch a comprehensive study on existing social protection schemes.

Directors encouraged the authorities to continue improving the quality and timeliness of data reporting to the Fund.


Mauritania: Selected Economic and Financial Indicators, 200811

 
  Est.   Projections

 

2008   2009   2010 2011
 
             

National income and prices

           

GDP at constant prices

3.7   -1.1   4.6 5.2

Non-oil GDP at constant prices

4.1   -0.9   5.2 5.3

Oil production (1000 barrels per day)

12.1   10.7   7.5 7.5

GDP deflator

12.4   -6.2   8.0 2.7

Non-oil GDP deflator

13.0   -4.1   8.7 2.7

Consumer price index (period average)

7.3   2.2   4.8 4.8

Consumer price index (end of period)

3.9   5.0   4.6 5.1

External sector

           

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

27.5   -23.4   21.9 4.8

Of which: Non-oil

37.5   -20.8   28.8 4.7

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

21.7   -26.3   16.4 12.1

Current account balance (in percent of GDP)

-15.7   -12.7   -11.9 -16.5

Official reserves

           

Gross official reserves 1/

           

In millions of US dollars, end of period

194.9   237.9   247.6 288.6

In months of following year's imports excluding extractive industries

2.2   2.2   2.5 2.7

Money

           

Money and quasi-money (percentage change)

13.7   15.2   13.0 --

Credit to the private sector (percentage change)

23.6   3.9   11.4 --

Investment and savings

           

Gross investment (percentage of GDP)

27.8   25.2   31.1 32.7

Gross savings (percentage of GDP)

12.0   12.4   19.2 16.2

Consolidated government operations (percent of non-oil GDP)

           

Revenue and grants

25.9   26.7   27.8 25.8

Non-oil Revenue and grants

23.7   24.8   26.6 24.7

Non-oil Revenue

22.9   24.0   23.5 23.4

Oil revenue

2.2   1.8   1.2 1.1

Expenditure and net lending

32.8   32.0   32.8 30.2

Overall balance including grants

-7.0   -5.4   -5.0 -4.3

Basic non-oil balance; program definition 2/

-7.7   -5.3   -3.8 -1.6

External debt

           

Total external debt (in percent of GDP)

88.5   103.1   71.5 74.8

Of which: PPG external debt (in percent of GDP)

80.7   92.9   58.8 55.3

Memorandum items:

           

Ouguiya/US$ exchange rate (end of period)

261.5   262.0   -- --

Nominal GDP (in billions of UM)

855   794   896 968

Nominal non-oil GDP (in billions of UM)

798   759   868 938

Nominal GDP (in millions of US dollars)

3,540   3,029   3,421 3,695

Price of oil (US$/barrel)

85.6   54.3   66.5 71.8

Population (in millions)

3.1   3.2   3.3 3.4

GDP per capita (in US dollars)

1,124   939   1,036 1,093
 

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

1/ Excluding the oil account.

2/ Defined as government non-oil revenue (excluding grants) minus government expenditure (excluding foreign-financed investment expenditure and interest on external debt).


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. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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