IMF Staff Completes 2016 Article IV Mission to MauritaniaPress Release No. 16/69
February 22, 2016
An International Monetary Fund (IMF) team led by Ms. Mercedes Vera Martin visited Nouakchott from February 8 to 22, 2016 to review recent economic developments and outlook in the context of the annual Article IV Consultation. At the end of the visit, Ms. Vera Martin issued the following statement:
“Following several years of strong economic performance, Mauritania is facing a severe terms-of-trade shock due to the decline in iron ore prices that has weakened its economic performance and outlook. The authorities responded initially with counter-cyclical policies using external and fiscal buffers accumulated in the boom years. As it became apparent that the shock was more persistent than originally envisaged, the authorities started to adjust policies in 2015 by allowing for a more flexible exchange rate and adopting fiscal measures to strengthen revenues.
“The decline in global iron ore prices has substantially lowered export and fiscal mining revenues. With iron ore prices expected to remain low over the medium term, external and fiscal vulnerabilities have risen.
“Economic growth slowed during 2015. The IMF team estimates real GDP growth at around 2 percent, from 6.6 percent achieved in 2014, due in part to lower iron production. Non-extractive GDP growth is estimated to have moderated to 3.1 percent in 2015 from 6.6 percent in 2014. Annual average CPI inflation eased to around 0.5 percent in 2015, reflecting lower global food prices and the evolution of the exchange rate. The external current account deficit, which benefitted from lower oil prices, is estimated at 19 percent of GDP in 2015. On account of lower mining revenues, the overall fiscal deficit (excluding grants) widened to 5.6 percent of non-extractive GDP, from 4.1 percent in 2014, despite higher revenues associated with domestic oil revenues and authorities’ proactive measures to control current spending. As a result of fiscal and external trends; public and publicly guaranteed debt is estimated at 93 percent of GDP at end-2015. The economic slowdown has also affected the financial sector. The banking system remains well-capitalized and liquid, but liquidity is declining and the sector remains vulnerable to shocks.
“With the prudent economic policies followed by the authorities, real GDP growth is projected to recover to 4.2 percent in 2016 supported by a rebound in mining production. Economic activity in the non-extractive sector is expected to remain subdued, with growth slowing marginally to 2.9 percent in 2016. Inflation is expected to rise to around 3.6 percent. The current account deficit will improve to 15 percent of GDP and the fiscal deficit is expected to narrow to 3 percent of non-extractive GDP, on account of the implementation of revenue measures and spending restraint. The medium-term outlook remains dependent on iron and oil prices, the authorities’ policy response and the resilience of the financial sector.
“Looking ahead, the deteriorating outlook and heightened global uncertainty call for an ambitious adjustment to support the external position and public finances, and to promote economic diversification and more inclusive growth. This would require accelerating foreign exchange market reforms conducive to higher exchange rate flexibility, and promoting economic diversification and private sector development through reforms that improve competitiveness, trade, and access to credit and foreign exchange. On the fiscal front, in order to place the public debt on a downward trend, fiscal policy should aim at higher non-extractive revenues through a broader tax base that promotes fair taxation; restraint in current expenditures; and an investment envelope that is consistent with medium-term fiscal sustainability. Reforms to strengthen the fiscal framework, including through a new organic budget law, would support the process of fiscal consolidation.
“Preserving financial stability in the context of lower economic growth is also needed for the financial sector to support stronger economic diversification and private sector development over the medium term. Together with adequate macroeconomic policies and a strengthened monetary policy framework, stronger prudential and supervisory frameworks will reduce structural weaknesses and support financial stability. The Central Bank of Mauritania continues to strengthen its regulatory framework and supervision capacity to support the continued development and stability of the financial system.
“Mauritania can achieve its medium term goals of becoming more prosperous, more diversified and less dependent on commodity cycles despite the uncertain global economic environment. Implementing policies in this direction would require close policy coordination. Strengthening policy formulation, transparency and governance will reduce uncertainties, help anchor expectations and enhance the credibility of macroeconomic policies.
“The mission met with the Prime Minister, Mr. Yahya Ould Hademine; the Central Bank Governor, Mr. Abdel Aziz Ould Dahi; the Minister of Economy and Finance Mr. El Moctar Ould Djay; the Minister of Petroleum, Energy and Mining, Mr. Mohamed Salem Ould Bechir; the Minister of Fisheries and Maritime Economy, Mr. Nani Ould Chrougha; and other senior officials. The team also held discussions with representatives of the civil society and the private sector, and development partners. The team would like to thank the authorities and counterparts for their hospitality, productive discussions and looks forward to continuing its dialogue with the authorities in supporting Mauritania.”