CORRECTED: Press Release: IMF Approves Loan of US$14.4 million under PRGF Arrangement for Mali
July 26, 2001
The Executive Board of the International Monetary Fund (IMF) completed the second review of Mali's program under Mali's Poverty Reduction and Growth Facility (PRGF)1 arrangement.
In order to help Mali address the hardship stemming from the various shocks that have hit the economy since last year, the Executive Board approved an increase in the resources committed under the PRGF arrangement by SDR 4.665 million (about US$5.9 million). The Executive Board also extended the commitment period of the PRGF arrangement to August 5, 2003.
The completion of this review and commitment of additional resources, thus enables Mali to draw a total of SDR 11.415 million (about US$14.4 million), from the arrangement immediately.
Mali's three-year program was originally supported under the Enhanced Structural Adjustment Facility (ESAF), approved on August 6, 1999 (see Press release 99/39) for SDR 46.65 million (about US$58.7 million). So far, Mali has drawn SDR 13.50 million (about US$17 million) under the PRGF arrangement.
Following the Board discussion on Mali, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:
"Developments in 2000 were adversely affected by a crisis in the cotton sector, an increase in oil prices, a drought, and the impact of other developments in the region. These shocks caused a slowdown in economic activity, lowered government revenue, and widened the external sector deficit.
"Notwithstanding these shocks, program implementation was broadly satisfactory. Progress was made in the implementation of structural reforms, with the privatization of the energy company and the appointment of new associate judges at the commercial courts. However, delays were encountered in the preparation of a satisfactory action plan to reform the CMDT (the cotton company). Remedial steps are now being taken to improve the company's internal management and marketing strategies, and to lower its operating costs. In addition, the Malian authorities have prepared a reform agenda for the cotton sector in close collaboration with the World Bank, that envisages its complete liberalization by 2005.
"Reflecting the cumulative impact of the above-mentioned shocks, real GDP is projected to decline by about 1 percent in 2001. The external sector deficit is projected to deteriorate further owing to the sharp drop in the volume of cotton exports. The budgetary deficit is also projected to worsen in 2001, reflecting increased outlays related to restructuring of the cotton sector and higher election costs. In an effort to limit the weakening of the budgetary situation, the authorities will reduce nonpriority spending and reinforce their tax collection efforts.
"The structural program for 2001 focuses on the reform of the cotton sector, including the preparation of a medium-term financial restructuring of the CMDT and preparation for the privatization of the assets in one cotton-producing region. Other structural measures are designed to further civil service reform and to establish a mechanism for monitoring the use of resources freed by assistance under the enhanced HIPC Initiative. The government is pursuing its poverty reduction strategy, in line with the interim PRSP, and has made efforts to raise the share of poverty-reducing outlays.
"Resolution of the crisis in the cotton sector will be critical for the resumption of growth and the return to a sustainable fiscal path. The steps being taken by the authorities to address the weakness in the cotton sector are expected to reestablish confidence among cotton growers, avoid a weakening of the domestic banking system, and ensure the financing of the 2001/02 crop season."
Recent Economic Developments
The cotton sector crisis was triggered by depressed world prices for cotton fiber, weaknesses in the management of the cotton Compagnie Malienne de Développement des Textiles (CMDT), and the producers' decision to boycott the cotton farming to protest the low producer price paid by the CMDT.
Real GDP growth slowed to about 4 percent in 2000 from 6 ½ percent in 1999, but inflation remained subdued. The real affective exchange rate continued to depreciate, contributing to gains in external competitiveness.
Revenue performance in 2000 was adversely affected by the hike in oil price and slowdown in the economy. As a result, the basic budgetary balance turned into a deficit of 0.8 percent of GDP.
Nonetheless, higher-than-expected privatization receipts and budgetary assistance helped the authorities meet the expenditure program in 2000.
The cotton sector crisis had a destabilizing effect on the Malian economy. The authorities are determined to tackle this difficult situation. Total expenditure will be higher than originally programmed due to the cost to the budget of restructuring the cotton sector. In fact, the increase in government expenditure reflects primarily onetime outlays to stabilize the economy, as well as to foster social peace and the democratization process. To cover these outlays, the authorities are anticipating fiscal revenue of CFA 288.3 billion in 2001. In spite of the economic crisis, this target should be met in part because increased activity in the mining sector will bring in CFA 18.9 million in dividends.
On the fiscal front, the basic fiscal balance is expected to reach a deficit of 3.2 percent of GDP in 2001, as against the surplus of 1.4 percent initially programmed. The authorities are aware that additional efforts will be necessary in the coming years to keep spending under control.
The government of Mali reaffirms its commitment to implement a policy of liberalizing the economy, which implies that the government will withdraw from the productive, industrial, and commercial sectors, to the benefit of the private sector. But the key structural reform will be in the cotton sector. The reform of the cotton sector aims at lowering production prices, establishing a market-based pricing mechanism, strengthening producers' organizations, enhancing the participation of the private sector, and increasing the contribution of the cotton sector to the national economy.
The authorities are implementing their poverty reduction strategy along the lines described in the interim poverty reduction strategy paper (I-PRSP). A special treasury account has been opened at the Central Bank of West African States (BCEAO) to house HIPC Initiative resources freed by assistance under the initiative. The allocation of social spending reflects the priorities set out in the I-PRSP and poverty-related outlays have increased by 1.2 percentage points of GDP between 2000 and 2001.
Mali joined the IMF on September 27, 1963, and its quota2 is SDR 93.30 million (about US$118 million). Its outstanding use of IMF credit currently totals SDR 126.81 (about US$160 million).
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time 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 (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework of macroeconomic, structural, and social policies to foster growth and reduce poverty. Malian authorities are implementing their poverty reduction strategy along the lines described in the interim PRSP. They aim to produce their full PRSP by September 2001. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
2 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weights, its access to IMF financing, and its share in the allocation of SDRs.