Press Release: IMF Approves Second Annual ESAF Loan for Mali
April 21, 1997
The International Monetary Fund (IMF) today approved the second annual loan for Mali under the Enhanced Structural Adjustment Facility (ESAF)1, in an amount equivalent to SDR 20.67 million (about US$28 million), to support the government’s economic program for 1997. The loan is available in two equal semiannual installments, the first of which is available immediately.
Since 1992, the Malian economy has made substantial progress under reform programs supported by the IMF. Under the current ESAF approved on April 10, 1996, Mali implemented strong adjustment policies (see 96/14). Progress has been made in reducing financial imbalances and distortions in resource allocation, and creating a more supportive environment for private sector activity, thus enhancing the growth potential of the economy. In 1996, real GDP growth was estimated at 4 percent despite adverse weather conditions, and the annual rate of inflation was halved to 6.5 percent. Agricultural and industrial output continued to grow, with significant gains in the cotton, construction, and textile sectors. The external current account deficit narrowed and the overall fiscal deficit was reduced from 10.5 percent of GDP in 1995 to about 7.9 percent of GDP in 1996.
The 1997 Program
In the context of a medium-term strategy, the program for 1997, supported by the second annual ESAF loan, is designed to achieve an increase in real GDP of almost 6 percent, boosted by the impact of a good agricultural crop and the start-up of a new gold mine. Average annual inflation is to be lowered to 3.5 percent and the external current account deficit will be reduced to 11 percent of GDP from more than 13 percent of GDP in 1996.
To these ends, the authorities will continue to pursue fiscal consolidation in 1997 and over the medium term, while ensuring that adequate provision is made for spending in the social sectors. In light of the exceptionally large reduction in the overall fiscal deficit in 1996, the cost of general elections being held in the first half of 1997, and necessary recruitment in priority areas, the overall fiscal deficit is expected to increase by almost 1 percentage point to about 8.8 percent of GDP in 1997. The authorities will continue to improve the administrative capacity of the tax collection agencies, broaden the tax base, and minimize tax evasion. In addition, Mali will cooperate with its regional partners to prepare for the introduction in January 1998 of a lowcommon external tariff, as well as for the regional harmonization of indirect taxation, securities taxation, and investment incentives. On the expenditure side, the authorities will continue to pursue restrained policies, particularly in light of spending pressures being exerted on the government in this election year. A prudent credit policy in line with the balance of payments objectives is carried out at the regional level by the Central Bank of West African States.
Structural reforms under the program will focus on (a) further measures to promote private sector development, which will include steps to strengthen the judicial system; (b) continuation of reforms in the agricultural sector to increase and diversify production; and (c) privatization and restructuring of the remaining public sector enterprises.
To improve financial intermediation and ensure adequate financing for private sector activities, the authorities will strengthen the banking system by continuing efforts to rehabilitate and privatize Malian banks, while encouraging the establishment of microfinance institutions and private guarantee funds. In this context, the authorities will prepare an action plan for financial sector reform by end-September 1997.
Addressing Social Needs
Under the program, the authorities intend to strengthen their efforts to improve primary education and basic health services, and continue to provide other targeted measures to reduce poverty. Spending on health and education will rise to 33 percent of current expenditure in 1997 from about 31 percent in 1996. Available data indicate that progress is being made in alleviating poverty in rural areas, where the value of agricultural output, adjusted for inflation, has increased by about 50 percent between 1993 and 1996, suggesting that the living standard of Malian farmers, who represent three-fourths of Mali’s population, has been improving.
The Challenge Ahead
Mali’s economy remains fragile, and thus further progress will be needed to improve the climate for private sector activity. Continued efforts toward fiscal consolidation will also be necessary, and Mali will continue to rely heavily on concessional external assistance. As a result, timely availability of external financial assistance will remain a key condition for the success of the program. In addition, it will be necessary to resist any excessive demands from interest groups during this election period and stand ready to take any additional measures that may be required to safeguard the progress already achieved.
Mali joined the IMF on September 27, 1963; its quota2 is SDR 68.90 million (about US$94 million); and its outstanding use of IMF credit currently totals SDR 112 million (about US$154 million).
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.