IMF Executive Board Approves New Extended Credit Facility Arrangement for Mali and US$9.2 Million DisbursementPress Release No. 13/524
December 18, 2013
The Executive Board of the International Monetary Fund (IMF) today approved a new arrangement under the Extended Credit Facility (ECF) for Mali for an amount equivalent to SDR 30 million (about US$ 46.2 million or 32 percent of quota). The approval enables the immediate disbursement of an amount equivalent to SDR 6 million (about US$9.2 million).
The authorities’ program is designed to reduce balance-of-payments vulnerabilities and lay foundations for stronger, more inclusive growth. Reform efforts are focused on tax policy and revenue administration, public financial management and improving the business environment.
The new Fund-supported program builds on the success of the authorities’ policies supported by disbursements under the Rapid Credit Facility in 2013
Following the Executive Board’s discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair issued the following statement:
“Mali’s authorities have succeeded in maintaining macroeconomic stability in very difficult circumstances. The economy is recovering and the outlook is improving with the resumption of donor support and a gradual return of investor confidence. However, significant challenges remain. Against this background, a new Fund-supported arrangement under the Extended Credit Facility will help support the authorities’ economic program to sustain growth, maintain fiscal sustainability, and reduce poverty.
“Higher domestic revenue mobilization and increased efficiency of public spending will create fiscal space for needed development spending. Limited government recourse to domestic bank borrowing will safeguard credit to the private sector. Improved public financial management will ensure that donor funding is put to effective use, and improved internal expenditure controls will help prevent the accumulation of domestic arrears. More broadly, a prudent debt management centered on concessional borrowing will be needed in the period ahead.
“Far-reaching reforms will help improve the business environment, promote economic diversification, and boost Mali’s growth prospects. Priority areas include increasing financial development, combating corruption, streamlining tax procedures, improving infrastructure, and increasing labor productivity through improved education and health spending. Well communicated reforms in the production and pricing of energy are also important for fostering durable growth and reducing poverty.”
Recent economic developments
Mali is emerging from the most serious security and political crisis in its recent history.
The recent arrival of a UN security force (MINUSMA) is helping the government restore law and order in the north. Political normalization is well under way with the successful presidential and parliamentary elections. International financial support has been successfully mobilized: in May 2013, at the international donor conference in Brussels, donors pledged €3.25 billion ($4.4 billion) in financial assistance.
In the meantime, the economy is recovering and inflationary pressures have abated. After a 0.4 percent GDP decline in 2012, the improvement in the security situation and the resumption of donor assistance has helped revive business confidence. Activity is picking up in the service sectors hardest hit by the crisis (commerce, hotels, and restaurants). Favorable rainfall has boosted agricultural production. Average inflation declined from 5.3 percent in 2012 to negative 0.1 percent by October 2013 as food prices declined following the good harvest.
Prospects for the remainder of 2013 and for 2014 are generally favorable. The nascent recovery should gather strength as donor support builds up and credit to economy picks up. Real GDP is projected to increase by 5.1 percent in 2013 and 6.6 percent in 2014 supported by the rebound in agricultural output, the establishment of a third mobile phone operator, recovery in the service sector, and restart of construction projects. After 2014, growth is projected to settle in the 5–6 percent range. Average inflation is projected to remain close to zero in 2013 and reach 2 percent in 2014, below the 3 percent West African Economic and Monetary Union’s (WAEMU) ceiling.
The positive outlook is subject to several risks. Agricultural output is vulnerable to adverse weather conditions. Because of strong export concentration on gold (70 percent of the total) and cotton (15 percent of the total), export revenues depend to a large extent on volatile international gold and cotton prices. The security situation remains fragile despite recent improvements. Any setbacks in peace consolidation could weaken consumer, investor, and donor confidence and derail the incipient recovery. On the other hand, Mali is not significantly exposed to negative risks in the euro area because its exports are inelastic toward traditional trade partners’ growth. The banking sector is mostly financed by local deposits and is not directly exposed to the ongoing deleveraging of European banks.
The authorities’ programs aims at promoting policies that: (i) maintain macroeconomic stability, while allocating sufficient resources to poverty-reducing and other priority spending, including in the North; (ii) mobilize more government revenue;
(iii) strengthen public financial management; and (iv) improve the business environment, including by implementing anti-corruption measures.
Public spending will support national reconciliation, growth and poverty reduction. Budgetary allocations will be in line with the Growth and Poverty Reduction Strategy (G-PRSP) and the Plan for Sustainable Recovery (PRED). To that end, the authorities are committed to giving priority social spending—health, education and social development.
To increase tax revenue and lighten the administrative burden on the taxpayer, the Government will implement ambitious tax policy and administration reforms. Transparency will be used to build political support for a reduction of tax exemptions. In that context, the authorities intend to reform fuel pricing. Starting in 2013, the budget law has begun presenting estimates of the cost to the budget of the failure to adjust fuel prices to international oil price movements. To stem, and ultimately reverse, the erosion of tax revenue from petroleum products, the authorities will abandon the practice of setting the administrative value (used for tax calculation) below the market value. In order to improve the business climate, the government will take steps to address the most problematic factors for doing business. Investors consider access to financing, corruption, poor infrastructure (including electricity), tax regulation are key ingredients. The state electricity company will be reformed with the view of putting it on a sound financial footing.
The authorities have also stated their deep commitment to combating corruption. They will put in place concrete actions, one of which is a systematic follow up of all recommendations of varying control agencies, with regular reports on judicial or administrative actions taken. Another is the publication of judicial decisions.
Given the early stage of Mali’s recovery from the recent political and security crisis, reforms will be implemented progressively. The initial phase—through mid–2014—focuses on strengthening institutional capacity and developing strategies to address the most pressing issues. The following phases of the program will involve rolling out policy actions in these areas. These actions will be specified at the time of the first and subsequent reviews of the arrangement.