## 1mliea2023001 - 2022. Inflation peaked at almost 15 percent in mid-2022—resulting in an increase in ## Source details **Canonical URL:** [1mliea2023001 - 2022. Inflation peaked at almost 15 percent in mid-2022—resulting in an increase in](https://www.imf.org/-/media/files/publications/cr/2023/english/1mliea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1mliea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1mliea2023001.pdf.json) --- ### Recent economic developments and key statistics - Inflation: - Inflation peaked at almost 15 percent in mid-2022 and averaged 10 percent in 2022 (up from 3.8 percent in 2021). - Inflation in March 2023 was 7.5 percent. - Inflation outlook: expected to decline to 5 percent in 2023; projected to fall below 3 percent in 2024. - Output: - GDP growth: 3.1 percent in 2021 and 3.7 percent in 2022. - Outlook: GDP growth is expected to be around 5 percent in 2023; staff’s preliminary forecast sees a rebound to above 5 percent in 2023 and 2024. - Key projection series (selected): Real GDP growth: 4.8 (2019), -1.2 (2020), 3.1 (2021), 3.7 (2022), 5.0 (2023), 5.1 (2024), 5.3 (2025), 5.1 (2026), 5.0 (2027), 5.0 (2028). - Poverty and food insecurity: - Extreme poverty increased from 42 percent in 2019 to an estimated 50.3 percent in 2022. - Food insecurity (early 2023): more than 15 percent of the population estimated to be either severely food insecure (761,000 people) or at risk of becoming severely food insecure if no assistance is provided (2.9 million). - External sector: - Current account deficit: around 2 percent of GDP in 2020, widened to 7.5 percent of GDP in 2021; preliminary 2022: external deficit declined to 6.9 percent of GDP. - External position assessment: current account deficit in 2021 is about 1.7 percent of GDP larger than explained by fundamentals; closing gap would require an 8 percent exchange rate depreciation. - Gold accounts for 80 percent of Mali’s total exports. - WAEMU-wide reserves at end-2022: equivalent of around 4.5 months’ worth of imports. - Fiscal sector: - Fiscal deficit: 4.8 percent of GDP in 2022, unchanged from 2021. - Tax revenues: just over 13 percent of GDP in 2022 (compared with 15 percent in 2021). - Public debt: 52.5 percent of GDP in 2022 (from 50.4 percent in 2021). - Public wage bill: grew by 13 percentage points between 2018 and 2022, to 55 percent of fiscal revenues (WAEMU norm: 35 percent). - Public debt arrears: buildup of payment arrears around 3 percent of GDP in 2022, of which about 0.5 percentage points were to external creditors. - Monetary and financial: - BCEAO regional policy rate raised to 3 percent in February 2023, a 100-basis point cumulative increase since June 2022. - Bond market: drop in uptake of Mali’s bond placements in Q1 2023 with average coverage ratio of about 70 percent and a shortfall of almost 50 percent relative to the original issuance calendar. - Eurobond issuance difficulties since spring 2022; reserves at the currency union level filled a sizable financing gap in 2022. ### Sources of fragility and shocks - Political and security: - Political instability following two coups d’état (August 2020 and May 2021); five-year delay in transition to democratic rule announced. - Regional embargo and suspension from ECOWAS and the African Union decision-making bodies in first half of 2022; sanctions lifted July 3, 2022 (economic sanctions January–June 2022 lifted after transitional government announced elections in February 2024; political sanctions remain). - Withdrawal of French antiterrorism forces and tensions with UN MINUSMA reduced international support. - Elections planned for February 2024; constitutional referendum originally planned for March 2023 postponed. - Conflict and displacement: heightened violence, strikes in 2022, and increased internal displacements. - Climate and agriculture: - Climate risks intensified with rising average temperatures and more frequent climate-related natural disasters. - Agriculture vulnerable; poor weather and parasite infection harmed cotton output in 2022. - Low international accreditation for Mali’s climate agency constrains access to climate adaptation funds. - External shocks: - War in Ukraine and regional sanctions triggered surges in global food and fuel prices and disrupted fertilizer imports. - Tightening global and regional financing conditions reduced official development assistance and portfolio flows. ### Outlook and risks - Baseline expectations: - GDP growth around 5 percent in 2023, supported by strong recovery in the agricultural sector and high gold export revenues. - Inflation projected to decline to 5 percent in 2023 and fall below BCEAO’s 3-percent target by mid-2024. - Downside risks: - Acute security risks—any escalation in violence would weigh on the outlook. - Tightening financing conditions in regional markets may pose liquidity risk that could turn into solvency problems amid lack of international budget support. - Climate change increases likelihood of natural disasters particularly affecting agriculture. - Continued constraints on international financial support given political situation. - Adverse scenario (example from Annex V/Adverse scenario): - Growth could be "1.7 percent in 2024 instead of 5.1 percent" and remain below trend in 2025. - Authorities would face gross financing needs of more than 14 percent of GDP in 2024 and 2025 (up from 12.2 and 13.3 percent in the baseline). - Net financing gap of 4.8 percent, up from zero in the baseline. - Authorities could accumulate about 6 percent of GDP in regional and external debt arrears under sanctions-like scenario. - Public debt would reach over 60 percent of GDP in 2025 under the adverse scenario. ### Fiscal and policy discussions (Article IV summary) - Immediate priority: reduce the fiscal deficit in the near term to ease funding needs amid an extremely tight financing environment and to ensure debt sustainability. - Staff recommended measures for fiscal consolidation: - Greater revenue mobilization (short-term and medium-term measures). - Curbing the public wage bill. - Other expenditure rationalization and improving spending efficiency, including in SOEs. - Protecting growth and vulnerable groups: - Preserve growth-enhancing capital spending. - Reforms to the social safety net to protect the most vulnerable and tackle rising food insecurity and extreme poverty. - Specific revenue and expenditure policy recommendations: - Short-term revenue: elimination of various tax exemptions; return to automatic fuel pricing; replace exemptions with direct transfers targeted at the most vulnerable where feasible. - Medium-term revenue: taxation of income from government debt instruments; finalize property taxation reforms; strengthen revenue and customs administration via digitalization and interconnection of tax, customs, and treasury IT systems; create a medium-size taxpayers office. - Expenditure control: contain the wage bill—avoid further ad-hoc wage increases, rationalize bonuses and allowances; work on a social stability pact with social partners. - Public investment and SOEs: improve screening of major infrastructure projects; strengthen cash management and commitment controls; address EDM operational losses and implement performance plan established with the World Bank. - Social protection and subsidy reform: - Phase out untargeted subsidies and scale up targeted measures; fuel subsidies were 1.2 percent of GDP in 2022. - Strengthen targeted cash transfers and expedite beneficiary registration and payment systems. ### Financing conditions and reform measures undertaken (selected) - 2022 measures to broaden the tax base and improve compliance: - Introduction of an electronic tax declaration for large companies subject to VAT. - A digital invoicing system. - A new tax on exports of gold and other mining products not covered by the Mining Code. - A minimum transport tax on two-wheeled and related vehicles. - New and increased excise taxes on select consumer products. - Taxation of previously exempt agricultural equipment. - Operationalization of monthly VAT credit refunds. - Arrears management: - Sanctions in early 2022 led to removal of access to the treasury single account and a default on external bond payments, accumulating arrears around 3 percent of GDP. - Authorities repaid arrears to external creditors and regional bondholders once sanctions were lifted in July 2022, facilitating return to the regional bond market; some domestic arrears to suppliers remain outstanding with plans indicated for repayment. ### Monetary, banking, and financial stability (chapter: The banking system appeared stable) - Banking system performance: - Risk-weighted capital ratios: remained high but declined slightly from 12.8 percent in 2021 to 12¼ percent in the first half of 2022. - Credit growth: has remained strong at around 20 percent. - Deposit growth: slowed significantly in the first half of 2022 but rebounded in the second half of 2022. - Asset quality: nonperforming loans (NPLs) rose from 9.8 percent in 2021 to 10.3 percent in the first half of 2022. - Access to banking: less than 30 percent of households have bank accounts; broader financial inclusion including microfinance and e-money covers 85 percent of the population in 2022. - Financial soundness indicators (selected, preserved as reported): - Risk-weighted capital ratio: 12.8 percent (2021) → 12¼ percent (H1 2022). - NPLs: 9.8 percent (2021) → 10.3 percent (H1 2022). - Credit growth: around 20 percent. - Public wage bill: just over 55 percent of tax revenues (2023 assumption) vs WAEMU target of 35 percent. - Fiscal deficit: 4.8 percent of GDP (2023 baseline); expected 3 percent of GDP by 2026. - Public debt: projected around 56 percent of GDP in 2028. - Current account deficit: projected 3.4 percent by 2025. - Revenue loss from insecurity: 4 percent of GDP in 2022. - Authorities’ views: - Broad agreement with staff’s macro-financial characterization; noted crises’ toll and contested some staff assumptions (e.g., no fertilizer shortage in 2022 per authorities). - Questioned timing of BCEAO tightening given liquidity needs; emphasized public wage bill as necessary for social peace. - Reported that 90 percent of commitments under the ECF program were fulfilled but sanctions hindered full execution. ### Debt, debt sustainability, and tailored DSA findings - Public debt and projections: - Public debt (percent of GDP): 40.7 (2019), 46.9 (2020), 50.4 (2021), 52.5 (2022), 53.8 (2023), 54.6 (2024), 55.1 (2025), 55.2 (2026), 55.5 (2027), 56.1 (2028). - Baseline public debt-to-GDP ratio projected to rise to around 60 percent over the medium term in some analyses; public debt-to-GDP expected to be around 56 percent of GDP in 2028 in some projections. - DSA customized scenarios and risks: - Customized residency-based external debt scenario indicates breaches of external debt service and export thresholds from 2024 to 2032 if two thirds of government securities are treated as external. - Stock-flow adjustments (SFAs) matter: historical SFAs averaged 1.5 percent of GDP across the currency union and about 0.7 percent for Mali; staff approximate true overall deficits are 0.7 percent of GDP higher every year in the customized scenario. - Under adverse commodity price and SFA scenarios, PV of public debt-to-GDP breaches the 55 percent threshold in 2025–2032 depending on the scenario. - Authorities’ stance: - Agreed with general conclusions of the debt sustainability analysis; committed to maintaining sustainable debt and engaging with creditors to manage arrears and liquidity risks. ### Fund engagement, programs, and capacity development - Recent engagement: - ECF approved Aug 28, 2019 – Aug 21, 2022; Amount Drawn: SDR 80.00 (under the ECF arrangement). - RCF disbursement: SDR 147 million approved Apr 30, 2020 (COVID response). - CCRT debt service relief: SDR 30 million (five tranches). - SDR allocation: just under SDR 180 million (around 1.3 percent of GDP) on-lent by BCEAO to the Malian government. - Program performance and disruptions: - ECF-supported reforms interrupted by coups (Aug 2020, May 2021) and ECOWAS sanctions (Jan–Jun 2022); ECF expired in August 2022. - Of 14 outstanding structural benchmarks, authorities completed half; several important structural benchmarks remained in progress as of August 2022. - Capacity development priorities: - Domestic revenue mobilization, public financial management (PFM), data quality, AML/CFT measures, statistics (rebasing national accounts; preliminary 2020-2024 series expected by June 2023; historical series by end-2023). - Continued TA coordination with partners: extensive mission counts across revenue mobilization, macro-fiscal framework, PFM, debt management, national accounts, and statistics. - Resident Representative: Mr. Ahmed Zorome since October 2021. ### Coordination with development partners and external financing - Development partners and coordination: - Emphasis on close cooperation with World Bank, African Development Bank, European Union, United Nations and others to avoid overlapping TA and overburdening authorities. - Re-engagement of partners critical for structural reforms and financing; elections scheduled for February 2024 are a determinant of return of external support. - Financing composition and needs: - GFNs (2023): 1,035 billion CFAF / 1,868 million USD / 9.4 percent of GDP. - Overall deficit (accrual basis) (2023): 526 billion CFAF / 949 million USD / 4.8 percent of GDP. - Amortization (2023): 509 billion CFAF / 919 million USD / 4.6 percent of GDP. - Public debt (2023): 5,521 billion CFAF / 9,962 million USD / 50.4 percent of GDP. - Debt service (2023): 656 billion CFAF / 1,184 million USD / 6.0 percent of GDP. - Financing composition (2023, domestic): Bonds and t-bills 905 billion CFAF; Bank net credit 498 billion CFAF; Central Bank (net) 262 billion CFAF. - IMF on-lending (2023): 325 billion CFAF (0.30 percent of GDP as listed under financing components). ### Social, governance, and AML/CFT priorities - Social spending and safety nets: - Authorities agreed on need to reduce poverty and food insecurity; committed to poverty reduction strategy (2019-2023) though poverty rose. - Strategy combines long-term food-security measures and cyclical emergency interventions; authorities favored recent transfers over more targeted measures for inclusion concerns. - Staff recommendations: reform social safety net towards better targeting (Unified Social Register), reduce untargeted subsidies, and redirect savings to targeted transfers. - Governance and transparency: - Key governance reforms: strengthen asset declaration regime; fortify anti-corruption mandates; improve transparency in public procurement and mining; publish beneficial ownership information. - AML/CFT: lack of transparency in gold mining sector and other deficiencies pose money laundering and terrorism financing risks; Mali remains on the FATF gray list as of March 2023. - Removing the country from the gray list deemed beneficial for investment climate. - Climate resilience: - Priority actions: build resilient infrastructure; sustainable irrigation; access climate funds constrained by accreditation, language barriers and high administrative charges. *Prepared by IMF staff during virtual discussions held between March 6 and March 17, 2023; report prepared by a team comprising Wenjie Chen (head), Peter Kovacs, Luc Tucker, Nico Valckx, Youssouf Kiendrebeogo, Jakree Koosakul, Ahmed Zorome, and Bakary Traore; Approved By Montfort Mlachila (AFR) and Boileau Loko (SPR).* *Source: IMF staff report excerpt (1mliea2023001).* ### 2022. Inflation peaked at almost 15 percent in mid-2022—resulting in an increase in ### 1mliea2023001 - 2022. Inflation peaked at almost 15 percent in mid-2022—resulting in an increase in ### Recent economic developments and key statistics - Inflation peaked at almost 15 percent in mid-2022 and averaged 10 percent in 2022 (up from 3.8 percent in 2021). - Inflation in March 2023 was 7.5 percent. - GDP growth: 3.1 percent in 2021 and 3.7 percent in 2022. - Outlook: GDP growth is expected to be around 5 percent in 2023. - Inflation outlook: expected to decline to 5 percent in 2023. - Extreme poverty increased from 42 percent in 2019 to an estimated 50.3 percent in 2022. - Food insecurity (early 2023): more than 15 percent of the population estimated to be either severely food insecure (761,000 people) or at risk of becoming severely food insecure if no assistance is provided (2.9 million). - External sector: - Current account deficit: around 2 percent of GDP in 2020, widened to 7.5 percent of GDP in 2021. - External position assessment: current account deficit in 2021 is about 1.7 percent of GDP larger than explained by fundamentals; closing gap would require an 8 percent exchange rate depreciation. - Gold accounts for 80 percent of Mali’s total exports. - Preliminary 2022: external deficit declined to 6.9 percent of GDP owing to higher gold exports and lower capital goods imports. - Monetary union-wide reserves at end-2022: equivalent of around 4.5 months’ worth of imports. - Fiscal sector: - Fiscal deficit: 4.8 percent of GDP in 2022, unchanged from 2021. - Tax revenues: just over 13 percent of GDP in 2022 (compared with 15 percent in 2021). - Public debt: 52.5 percent of GDP in 2022 (from 50.4 percent in 2021). - Public wage bill: grew by 13 percentage points between 2018 and 2022, to 55 percent of fiscal revenues (WAEMU norm: 35 percent). - Public debt arrears: buildup of payment arrears around 3 percent of GDP in 2022, of which about 0.5 percentage points were to external creditors. - Monetary and financial developments: - BCEAO regional policy rate raised to 3 percent in February 2023, a 100-basis point cumulative increase since June 2022. - Bond market: drop in uptake of Mali’s bond placements in Q1 2023 with average coverage ratio of about 70 percent and a shortfall of almost 50 percent relative to the original issuance calendar. - Eurobond issuance difficulties since spring 2022; reduced portfolio flows and a sizable financing gap in 2022 that was filled by reserves at the currency union level. ### Sources of fragility and shocks - Political and security: - Political instability following two coups d’état (August 2020 and May 2021); five-year delay in transition to democratic rule announced. - Regional embargo and suspension from ECOWAS and the African Union decision-making bodies in first half of 2022. - Withdrawal of French antiterrorism forces and tensions with UN MINUSMA reduced international support. - Elections planned for February 2024; constitutional referendum originally planned for March 2023 postponed. - Conflict and displacement: heightened violence, strikes in 2022, and increased internal displacements. - Climate and agriculture: - Climate risks intensified with rising average temperatures and more frequent climate-related natural disasters. - Agriculture is a main driver of growth and susceptible to climate shocks; poor weather and parasite infection harmed cotton output in 2022. - Low international accreditation for Mali’s climate agency constrains access to climate adaptation funds. - External shocks: - War in Ukraine and regional sanctions triggered surges in global food and fuel prices and disrupted fertilizer imports. - Tightening of global and regional financing conditions reduced official development assistance and portfolio flows. ### Outlook and risks - Baseline expectations: - GDP growth around 5 percent in 2023, supported by strong recovery in the agricultural sector and high gold export revenues. - Inflation projected to decline to 5 percent in 2023. - Downside risks: - Acute security risks—any escalation in violence would weigh on the outlook. - Tightening financing conditions in regional markets may pose liquidity risk that could turn into solvency problems amid lack of international budget support. - Climate change increases likelihood of natural disasters particularly affecting agriculture. - Continued constraints on international financial support given political situation. ### Fiscal and policy discussions (Article IV summary) - Immediate priority: reduce the fiscal deficit in the near term to ease funding needs amid an extremely tight financing environment and to ensure debt sustainability. - Staff recommended measures for fiscal consolidation: - Greater revenue mobilization. - Curbing the public wage bill. - Other expenditure rationalization. - Improving spending efficiency, including in SOEs. - Protection of growth and vulnerable groups: - Preserve growth-enhancing capital spending. - Reforms to the social safety net to protect the most vulnerable and tackle rising food insecurity and extreme poverty. - Structural reforms to unlock growth potential: - Governance: fighting corruption and improving transparency. - Health and education improvements. - Addressing climate change. - Fund engagement: - Country Engagement Strategy: Fund priority is supporting authorities to address sources of fragility and growth challenges. ### Financing conditions and reform measures undertaken - Measures implemented in 2022 to broaden the tax base and improve compliance included: - Introduction of an electronic tax declaration for large companies subject to VAT. - A digital invoicing system. - A new tax on exports of gold and other mining products not covered by the Mining Code. - A minimum transport tax on two-wheeled and related vehicles. - New and increased excise taxes on select consumer products. - Taxation of previously exempt agricultural equipment. - Operationalization of monthly VAT credit refunds. - Arrears management: - Sanctions in early 2022 led to removal of access to the treasury single account and a default on external bond payments, accumulating arrears around 3 percent of GDP. - Authorities made significant efforts to repay arrears to external creditors and regional bondholders once sanctions were lifted in July 2022, facilitating a swift return to the regional bond market. - Some domestic arrears to suppliers remain outstanding with plans indicated for repayment. *Prepared by IMF staff during virtual discussions held between March 6 and March 17, 2023; report prepared by a team comprising Wenjie Chen (head), Peter Kovacs, Luc Tucker, Nico Valckx, Youssouf Kiendrebeogo, Jakree Koosakul, Ahmed Zorome, and Bakary Traore; Approved By Montfort Mlachila (AFR) and Boileau Loko (SPR).* ### 15. The banking system appeared stable ### 15. The banking system appeared stable ### Banking system performance and financial inclusion - Risk-weighted capital ratios: remained high but declined slightly from 12.8 percent in 2021 to 12¼ percent in the first half of 2022. - Credit growth: has remained strong at around 20 percent. - Deposit growth: slowed significantly in the first half of 2022 (likely reflecting a decline in savings due to ECOWAS sanctions) but rebounded in the second half of 2022. - Asset quality: nonperforming loans (NPLs) rose from 9.8 percent in 2021 to 10.3 percent in the first half of 2022. - Access to banking: less than 30 percent of households have bank accounts. - Broader financial inclusion: including microfinance and e-money covers 85 percent of the population in 2022. ### Authorities’ views on macro-financial developments (banking, liquidity, markets) - Agreed broadly with staff’s characterization of economic and macro-financial developments. - Noted crises’ toll: pandemic, ECOWAS sanctions, and especially the cost of insecurity—ongoing for ten years—resulting in a 4 percent of GDP loss of revenues in 2022. - Fertilizer/crops: authorities stated there was no fertilizer shortage in 2022 due to the war in Ukraine, and hence no negative impact on crop yields (contrary to staff assumptions). - Financing conditions: acknowledged recent financing difficulties as widespread across WAEMU countries. - Monetary policy stance: questioned necessity and timing of BCEAO’s liquidity and monetary tightening to combat what they viewed as mostly imported (and transitory) inflation shocks, particularly given high liquidity needs during the harvest season. - Market access: cited Mali’s successful return to the bond market after sanctions were lifted in the second half of 2022 and sought to expand investor participation in auctions. - Public wage bill: viewed as necessary to maintain social peace; hoped recent social conference would start constructive dialogue toward a framework for the next five years to maintain a sustainable social pact. - Program implementation: reported that 90 percent of commitments under the ECF program were fulfilled but sanctions hindered full execution. ### Outlook and key projections - Real GDP growth: expected to recover and reach above 5 percent in 2023 and 2024. - Forecast assumptions: strong rebound in consumption and investment in 2023 from low 2022 activity due to the embargo; predicated on elections taking place in 2024; baseline expects February 2024 presidential elections to decrease political uncertainty and spur domestic activities but prompt resumption of IFI budget support only in 2025. - Sectoral drivers: agriculture expected to achieve high growth targets in absence of adverse weather events or fertilizer shocks. - Mining: expected increase in gold export revenues; gold exports account for 80 percent of export revenues; new gold discoveries in 2022 and new lithium mine projects expected to increase mining output, with lithium projects expected to start production by 2024/25. - Inflation: projected to decline to 5 percent in 2023 and fall below 3 percent in 2024; headline inflation to fall below BCEAO’s 3-percent inflation target by mid-2024. - Fiscal deficit (authorities’ latest policy plans): remains at 4.8 percent of GDP in 2023 in the baseline projection and is then expected to fall from 2024 onwards. - Assumptions for 2023 projection: new revenue measures in the 2022 budget annex are sustained; public sector wages keep rising as a share of GDP, accounting for just over 55 percent of tax revenues (far above the WAEMU target of 35 percent); capital spending forecast to remain subdued as a share of GDP in 2023. - Medium-term: return of external grants and implementation of revenue-raising measures imply tax receipts expected to increase slightly as a share of GDP; total spending broadly unchanged as a share of GDP; public sector wage bill falls as a share of GDP and capital spending recovers. - Fiscal deficit path: based on latest policy plans fiscal deficit expected to fall back to 3 percent of GDP by 2026. - Public debt: public debt-to-GDP expected to rise to around 56 percent of GDP in 2028, with a moderate risk of debt distress. - Sustainability assessment: debt assessed to remain sustainable over the medium term due to expected growth rebound and gradual fiscal consolidation, but the direction and pace of debt accumulation are worrisome as debt servicing costs crowd out other spending. - Stock-flow adjustments: baseline assumes stock-flow adjustments are zero; if similar to recent years, projected fiscal deficits would imply a rising and unsustainable path for public debt over the medium term. - Alternative scenario: classifying external debt as quasi-residence-based indicates persistent breaches of thresholds for debt distress during the forecast horizon. - Current account: projected to gradually narrow to 3.4 percent by 2025. - Drivers: easing external imbalances as commodity prices and one-off import surge factors reverse; elevated gold prices and lower oil prices are favorable. ### Key numerical indicators (selected, as reported) - Risk-weighted capital ratio: 12.8 percent (2021) → 12¼ percent (H1 2022). - NPLs: 9.8 percent (2021) → 10.3 percent (H1 2022). - Credit growth: around 20 percent. - Banking access: less than 30 percent of households with bank accounts; broader financial inclusion 85 percent (2022). - Gold exports: account for 80 percent of export revenues. - Public wage bill: just over 55 percent of tax revenues (2023 assumption) vs WAEMU target of 35 percent. - Fiscal deficit: 4.8 percent of GDP (2023 baseline); expected 3 percent of GDP by 2026. - Public debt: projected around 56 percent of GDP in 2028. - Current account deficit: projected 3.4 percent by 2025. - Revenue loss from insecurity: 4 percent of GDP in 2022. - Fuel subsidies: 1.2 percent of GDP in 2022. ### Risks to the outlook - Predominantly downside risks: - Security and political: acute security risks; delays in elections scheduled for February 2024 could incite unrest, disrupt the economy and push back IFI budget support resumption. - External shocks: adverse developments linked to the war in Ukraine could increase food and fuel prices and incite social unrest. - Global financial conditions: further tightening could cause a credit crunch, increase WAEMU sovereign bond funding costs, raise Malian banks’ funding costs, force higher rates and credit cuts, and result in higher NPLs. - Climate change: vulnerability to climate-driven agricultural disruption, desertification, crop failures, worsening poverty and food security. - Upside risks: - Higher global commodity prices and increased demand, including from China’s reopening, and new mining operations could support stronger-than-envisaged growth. - Financing risks: - Financing needs have risen due to high public wage bill, rapid increases in security spending and higher interest payments. - Mali could face liquidity and solvency issues if issuances continue to be undersubscribed or cancelled. - Any additional shock (election delays, war in Ukraine, funding costs) could trigger a financing crisis and social instability, affecting growth, fiscal deficits and debt sustainability. ### Policy discussions and recommendations A. Addressing acute fiscal challenges - Rationale: reducing the fiscal deficit in the near-term is urgent amid tighter financing constraints; significant share of government revenues allocated to military spending, public wages, and interest payments is worrisome. - Staff recommendation: adopt growth-friendly adjustments to reduce the fiscal deficit and return to the 3-percent WAEMU deficit ceiling by 2025 to bolster market confidence; slower consolidation risks financing shortfalls. - Revenue mobilization: - Short-term: substantial room to increase tax revenues, including elimination of various tax exemptions and return to automatic fuel pricing; exemptions to be replaced with direct transfers targeted at the most vulnerable where feasible. - Medium-term: taxation of income from government debt instruments (where exemptions are highly progressive), finalize property taxation reforms, streamline taxation; strengthen revenue and customs administration (digitalization, interconnecting tax, customs, and treasury IT systems), build a new strategic reform plan for tax administration, create a medium-size taxpayers office. - Expenditure control: - Priority: contain the wage bill—avoid further ad-hoc wage increases, rationalize bonuses and allowances, adjust public wage growth using alternative benchmarks. - Longer-term: work with social partners on a social stability pact; follow up on social conference outcomes and publish main themes and future plans. - Public investment and spending efficiency: - Improve screening of major infrastructure projects, strengthen cash management and commitment controls, reform the treasury single account, improve execution and payment controls. - Address SOE weaknesses: focus on EDM (energy provider) operational losses, oversight and reporting, excessive production costs, tariffs that fail to cover costs, payment delays by public clients, arrears and over-indebtedness; implement performance management plan established with the World Bank; increase transparency for fiscal risk assessments. - Authorities’ stance: acknowledged deficit trending downward since 2020, preferred consolidation to bring deficit below WAEMU 3 percent limit by 2026 (one year later than staff’s recommendation), committed to increasing revenues and implementing existing policies, have contingency plans (pursue more bilateral financing if sovereign debt issuances have low uptake), BCEAO insisted on continued support should liquidity needs arise. B. Protecting the most vulnerable - Rationale: reprioritizing social spending and strengthening the social safety net would mitigate rising food insecurity and extreme poverty and address fragility. - Subsidy reform: - Phase out untargeted subsidies and scale up targeted measures for the most vulnerable. - Savings from automatic fuel pricing could be redirected to targeted transfers; fuel subsidies were 1.2 percent of GDP in 2022 and typically favor higher-income households. - Strengthen targeted cash transfers: expedite identification and registration of beneficiaries, rethink delivery tools, and unblock payment of targeted cash transfers following the pandemic. *Source: 1mliea2023001 - 15. The banking system appeared stable* ### 38. The authorities agreed on the need to reduce poverty and food insecurity and ### 1mliea2023001 - 38. The authorities agreed on the need to reduce poverty and food insecurity and ### Social spending, poverty, and food insecurity - Authorities agreed on the need to reduce poverty and food insecurity and stressed the importance of social spending for protecting those most in need. - Authorities remained committed to the poverty reduction strategy set out in their strategic development report over the period 2019-2023, but acknowledged that poverty has actually risen due to the multiple shocks hitting the economy since 2020. - Strategy for tackling food insecurity includes: - a long-term component for overcoming hunger and ensuring food security; and - a cyclical component for implementing emergency interventions. - Recent transfers were viewed by authorities as necessary and preferable to more targeted measures, which they considered would have risked excluding some parts of society. ### Unlocking Mali’s growth potential (structural reforms) - Key governance and anti-corruption reforms identified by the Fund’s Governance Diagnostic mission (early 2021) include: - strengthening the asset declaration regime; - fortifying the mandates of anti-corruption investigations by judicial and prosecution bodies; - improving transparency in public procurement and the mining industry; - publication of beneficial ownership information of companies awarded government contracts. - Business environment improvements to boost private investment: - political certainty and lower risk of future sanctions to encourage domestic and foreign investment; - reductions in government financing needs to limit crowding out of private credit; - strengthen the judicial system, build resilience and sustainability into the energy sector, and broaden the tax base. - Education, health, and gender reforms: - vocational training for young labor-market entrants; - increased labor participation of women and improved gender equity in access to education and health services. - Climate resilience: - building resilient infrastructure and implementing sustainable irrigation for agriculture; - climate-related finance can fund projects but faces challenges due to strained international relations and tightening financial conditions. ### Authorities’ views (governance, climate, and macroeconomic conditions) - Authorities committed to fighting corruption and improving health and education outcomes. - Support for publishing beneficial ownership information and acknowledgment of a downward trend in asset declarations since 2018; planned workshops to validate the list of officials subject to declaration requirements. - Authorities agreed sanctions added to uncertainty for businesses and created barriers to trade. - On climate change, authorities recognized significant impacts on vulnerable groups and welcomed opportunities for climate-related financing but noted constraints linked to: - accreditation problems for Mali’s climate agency; - language barriers; and - high administration charges with multilateral providers. - Authorities supported climate-related taxes to mitigate future risks, e.g., dissuading governments from adding to air pollution. ### WAEMU regional policy coordination - WAEMU fiscal and financial policies should be consistent with area-wide monetary policy: - fiscal policy should support monetary policy to lower inflation and protect reserves; - monetary policy alone cannot combat second-round effects from sharp rises in food inflation or a de-anchoring of inflation expectations; - financial supervision must remain vigilant given higher interest rates and the large and growing bank-sovereign nexus in Mali. - Authorities’ position: BCEAO could do more to support member states; they disagreed with the timing and scale of recent tightening in regional monetary policy and changes in liquidity provision to banks. ### Other issues: AML/CFT, capacity development, and data - AML/CFT and transparency risks: - lack of transparency in the gold mining sector, weaknesses in oversight of regulated entities, and other AML/CFT deficiencies create significant risks of money laundering and terrorism financing. - As of March 2023, Mali remains on the FATF gray list of countries under increased monitoring. - Progress on Mali’s FATF Action Plan constrained by military coups, the COVID-19 pandemic, sanctions, limited resources and weak institutional capacity; FATF reviews expected in May and September 2023. - Capacity development priorities: - domestic revenue mobilization, public financial management (PFM), data quality, and AML/CFT measures. - Data and statistics: - INSTAT has rebased the 2015-2019 national accounts series using SNA 2008; preliminary 2020-2024 series expected by June 2023 and historical series by end 2023. - Staff urged strengthening and expanding fiscal reporting coverage of extra-budgetary entities and harmonizing debt recording between debt and treasury departments. - Mali’s Fund credit and safeguards: - Mali has credit outstanding to the Fund of SDR 388.4 million (208 percent of quota). - BCEAO implemented all recommendations from the 2018 safeguards assessment; an update of the assessment is in progress. ### Staff appraisal: recent performance, outlook, risks, and policy recommendations - Recent performance and near-term outlook: - Economic growth was estimated at 3.7 percent in 2022. - Staff’s preliminary forecast sees a rebound in growth to above 5 percent in 2023 and 2024 and a softening of inflationary pressures. - Inflation is expected to come down to 5 percent in 2023 and then fall below 3 percent in 2024 as supply shocks subside. - Current account deficit is expected to narrow from 6.9 percent of GDP in 2022 to 3.5 percent of GD by 2025. - Downside risks: - worsening security situation; - any delay to the elections scheduled for February 2024; - vulnerability to climate change disrupting agricultural production; - substantial risk of a financing crisis due to deterioration in external financing, tightening in BCEAO refinancing conditions, and lower subscription rates for government debt issuances. - Fiscal policy recommendations to address tighter financing constraints: - more ambitious fiscal consolidation and faster convergence towards WAEMU’s 3-percent fiscal deficit ceiling; - strengthen domestic revenue mobilization; - control expenditures including public wages; - improve spending efficiency; - improve SOE performance. - capacity development through technical assistance remains critical. - an accelerated timeframe towards fiscal deficit convergence could signal fiscal discipline and boost market confidence and help fiscal–monetary coordination at the regional level. - Social safety nets: - reform the social safety net system with more targeted measures toward the most vulnerable households; - reduce untargeted subsidies (e.g., fuel subsidies and customs exemptions) that do not benefit those most in need; - improve and expand the existing social safety system and scale up targeted measures via the Unified Social Register; - strengthen controls on execution and payments. - Medium-term structural reforms: - fight corruption and improve transparency, including in the gold mining sector; - address AML/CFT deficiencies in line with Mali’s Action Plan agreed with the FATF; - improve education outcomes, gender equity, and vocational training; - enhance health outcomes; - access to climate funds and enhanced policy assistance to adapt to climate change, recognizing constraints from Mali’s limited capacity. - Procedural recommendation: - Staff recommends that the next Article IV consultation for Mali be held on the 12-month cycle. ### Key numeric indicators and projections (selected, preserved exactly as in source) - Real GDP growth: 4.8 (2019), -1.2 (2020), 3.1 (2021), 3.7 (2022), 5.0 (2023), 5.1 (2024), 5.3 (2025), 5.1 (2026), 5.0 (2027), 5.0 (2028) - Consumer price inflation (average): -3.0 (2019), 0.5 (2020), 3.8 (2021), 10.0 (2022), 5.0 (2023), 2.8 (2024), 2.0 (2025), 2.0 (2026), 2.0 (2027), 2.0 (2028) - Overall balance (accrual basis): -1.7 (2019), -5.4 (2020), -4.8 (2021), -4.8 (2022), -4.8 (2023), -4.3 (2024), -3.6 (2025), -3.0 (2026), -3.0 (2027), -3.0 (2028) - Public debt (percent of GDP): 40.7 (2019), 46.9 (2020), 50.4 (2021), 52.5 (2022), 53.8 (2023), 54.6 (2024), 55.1 (2025), 55.2 (2026), 55.5 (2027), 56.1 (2028) - Current account balance, including official transfers: -7.5 (2019), -2.2 (2020), -7.5 (2021), -6.9 (2022), -6.1 (2023), -5.5 (2024), -3.4 (2025), -3.7 (2026), -4.0 (2027), -4.4 (2028) - Nominal GDP (CFAF billions): 10,125 (2019), 10,140 (2020), 10,964 (2021), 11,932 (2022), 12,905 (2023), 13,943 (2024), 14,975 (2025), 16,054 (2026), 17,194 (2027), 18,414 (2028) - Mali’s credit outstanding to the Fund: SDR 388.4 million (208 percent of quota) - Staff estimates: economic growth was estimated at 3.7 percent in 2022 and staff’s preliminary forecast sees a rebound to above 5 percent in 2023 and 2024. - Inflation outlook: expected to come down to 5 percent in 2023 and then fall below 3 percent in 2024. - Current account outlook: expected to narrow from 6.9 percent of GDP in 2022 to 3.5 percent of GD by 2025. *Source: IMF staff report excerpt (chapter on Mali).* ### 1.3 percent of GDP on-lent from the BCEAO. ### 1.3 percent of GDP on-lent from the BCEAO. ### Fiscal position: consolidated government (levels and percent of GDP) - Nominal GDP (CFAF billions): 10,125 (2019); 10,140 (2020); 10,964 (2021); 11,932 (2022); 12,905 (2023); 13,943 (2024); 14,975 (2025); 16,054 (2026); 17,194 (2027); 18,414 (2028). - Total revenue (CFAF billions): 1,982 (2019); 1,958 (2020); 2,281 (2021); 2,318 (2022); 2,564 (2023); 2,790 (2024); 3,021 (2025); 3,282 (2026); 3,555 (2027); 3,852 (2028). - Total revenue (percent of GDP): 19.6 (2019); 19.3 (2020); 20.8 (2021); 19.4 (2022); 19.9 (2023); 20.0 (2024); 20.2 (2025); 20.4 (2026); 20.7 (2027); 20.9 (2028). - Budgetary revenue (CFAF billions): 1,571 (2019); 1,510 (2020); 1,737 (2021); 1,687 (2022); 1,871 (2023); 2,041 (2024); 2,216 (2025); 2,420 (2026); 2,631 (2027); 2,863 (2028). - Budgetary revenue (percent of GDP): 15.5 (2019); 14.9 (2020); 15.8 (2021); 14.1 (2022); 14.5 (2023); 14.6 (2024); 14.8 (2025); 15.1 (2026); 15.3 (2027); 15.5 (2028). - Total expenditure and net lending (CFAF billions): 2,344 (2019); 2,625 (2020); 2,881 (2021); 2,932 (2022); 3,267 (2023); 3,513 (2024); 3,797 (2025); 4,018 (2026); 4,342 (2027); 4,696 (2028). - Total expenditure and net lending (percent of GDP): 23.1 (2019); 25.9 (2020); 26.3 (2021); 24.6 (2022); 25.3 (2023); 25.2 (2024); 25.4 (2025); 25.0 (2026); 25.3 (2027); 25.5 (2028). - Overall balance (accrual basis) (CFAF billions): -171 (2019); -545 (2020); -526 (2021); -571 (2022); -619 (2023); -600 (2024); -539 (2025); -482 (2026); -516 (2027); -552 (2028). - Overall balance (accrual basis) (percent of GDP): -1.7 (2019); -5.4 (2020); -4.8 (2021); -4.8 (2022); -4.8 (2023); -4.3 (2024); -3.6 (2025); -3.0 (2026); -3.0 (2027); -3.0 (2028). - Overall balance (accrual, excl. grants) (percent of GDP): -3.6 (2019); -6.6 (2020); -5.5 (2021); -5.1 (2022); -5.5 (2023); -5.2 (2024); -5.2 (2025); -4.8 (2026); -4.5 (2027); -4.2 (2028). ### Expenditure composition - Current expenditure (CFAF billions): 1,281 (2019); 1,570 (2020); 1,699 (2021); 1,846 (2022); 2,069 (2023); 2,195 (2024); 2,269 (2025); 2,377 (2026); 2,490 (2027); 2,610 (2028). - Current expenditure (percent of GDP): 12.6 (2019); 15.5 (2020); 15.5 (2021); 15.5 (2022); 16.0 (2023); 15.7 (2024); 15.2 (2025); 14.8 (2026); 14.5 (2027); 14.2 (2028). - Wages and salaries (percent of GDP): 5.1 (2019); 6.1 (2020); 7.2 (2021); 7.4 (2022); 7.7 (2023); 7.5 (2024); 7.1 (2025); 6.8 (2026); 6.5 (2027); 6.2 (2028). - Interest (percent of GDP): 1.0 (2019); 1.2 (2020); 1.3 (2021); 1.5 (2022); 1.5 (2023); 1.5 (2024); 1.5 (2025); 1.5 (2026); 1.5 (2027); 1.5 (2028). - Capital expenditure (CFAF billions): 658 (2019); 614 (2020); 642 (2021); 460 (2022); 510 (2023); 575 (2024); 729 (2025); 784 (2026); 934 (2027); 1,102 (2028). - Capital expenditure (percent of GDP): 6.5 (2019); 6.1 (2020); 5.9 (2021); 3.9 (2022); 4.0 (2023); 4.1 (2024); 4.9 (2025); 4.9 (2026); 5.4 (2027); 6.0 (2028). ### Financing, gross fiscal financing needs, and debt service - Financing (percent of GDP): 0.8 (2019); 5.7 (2020); 4.2 (2021); 4.7 (2022); 6.1 (2023); 4.2 (2024); 3.5 (2025); 2.9 (2026); 2.9 (2027); 2.9 (2028). - External financing (net) (percent of GDP): 3.0 (2019); 0.6 (2020); 0.2 (2021); -0.5 (2022); 0.0 (2023); 0.5 (2024); 1.3 (2025); 1.4 (2026); 1.9 (2027); 1.4 (2028). - Domestic financing (net) (percent of GDP): -2.2 (2019); 5.1 (2020); 4.0 (2021); 5.2 (2022); 6.2 (2023); 3.7 (2024); 2.2 (2025); 1.5 (2026); 1.0 (2027); 1.5 (2028). - Gross Fiscal Financing Needs (GFNs) (2023): 1,035 billion CFAF / 1,868 million USD / 9.4 percent of GDP (GFNs = Overall deficit (accrual basis) + Amortization). - Overall deficit (accrual basis) (2023): 526 billion CFAF / 949 million USD / 4.8 percent of GDP. - Amortization (2023): 509 billion CFAF / 919 million USD / 4.6 percent of GDP. - Public debt (2023): 5,521 billion CFAF / 9,962 million USD / 50.4 percent of GDP. - Debt service (2023): 656 billion CFAF / 1,184 million USD / 6.0 percent of GDP. - Financing composition (2023, domestic): Bonds and t-bills 905 billion CFAF; Bank net credit 498 billion CFAF; Central Bank (net) 262 billion CFAF. - IMF on-lending (2023): 325 billion CFAF (0.30 percent of GDP as listed under financing components). - Memo exchange rate: 554.6 CFAF per USD (2021 noted as 622? — the table shows "Exchange rate (CFAF per USD) 5546226174.8" — preserved as presented). ### Balance of payments and external sector - Current account balance (CFAF billions, excluding official transfers): -1,197 (2019); -596 (2020); -1,158 (2021); -1,153 (2022); -1,122 (2023); -1,104 (2024); -981 (2025); -1,097 (2026); -1,242 (2027); -1,404 (2028). - Current account balance (percent of GDP, including official transfers): -7.5 (2019); -2.2 (2020); -7.5 (2021); -6.9 (2022); -6.1 (2023); -5.5 (2024); -3.4 (2025); -3.7 (2026); -4.0 (2027); -4.4 (2028). - Exports, f.o.b. (CFAF billions): 215 (2019); 327 (2020); 552 (2021); 695 (2022); 316 (2023); 434 (2024); 543 (2025); 571 (2026); 397 (2027); 1,412? (table lists "2042944452" sequence — preserved in earlier export series as 204, 294, 445, 2; exported totals shown above are as listed). - Gold exports (CFAF billions): 156 (2019); 622 (2020); 582 (2021); 129 (2022); 242 (2023); 327 (2024); 502 (2025); 741 (2026); 307 (2027); 1,313? (sequence as in table: 3332463334 — preserved as listed in source). - Imports, f.o.b. (CFAF billions): -2,527 (2019); -2,469 (2020); -2,866 (2021); -3,356 (2022); -3,566 (2023); -3,696 (2024); -3,908 (2025); -4,131 (2026); -4,370 (2027); -4,633 (2028). - Services (net) (CFAF billions): -867 (2019); -948 (2020); -1,060 (2021); -1,065 (2022); -1,072 (2023); -1,194 (2024); -1,277 (2025); -1,366 (2026); -1,475 (2027); -1,524 (2028). - Transfers (net) (CFAF billions): 893 (2019); 865 (2020); 871 (2021); 893 (2022); 918 (2023); 985 (2024); 1,164 (2025); 1,259 (2026); 1,361 (2027); 1,432 (2028). - Capital and financial account (CFAF billions): 985 (2019); 637 (2020); 735 (2021); 356 (2022); 779 (2023); 750 (2024); 930 (2025); 1,000 (2026); 1,161 (2027); 1,158 (2028). - Overall balance (CFAF billions): 264 (2019); 446 (2020); -60 (2021); -466 (2022); -11 (2023); -124 (2024); 234 (2025); 124 (2026); 653 (2027); 339 (2028). - Reserve assets (CFAF billions): -264 (2019); -446 (2020); 604 (2021); 668 (2022); 612 (2023); -423 (2024); -412 (2025); -465 (2026); -339 (2027); (2028 blank). ### Monetary developments and liquidity (Monetary Survey) - Money supply (M2) (CFAF billions): 3,000 (2019); 3,665 (2020); 4,289 (2021); 4,791 (2022); 5,151 (2023); 5,598 (2024); 6,014 (2025); 6,364 (2026); 6,904 (2027); 7,394 (2028). - Money supply (M2) contribution to growth (percent): 9.0 (2019); 22.2 (2020); 17.0 (2021); 11.7 (2022); 8.1 (2023); 8.0 (2024); 7.4 (2025); 7.2 (2026); 7.1 (2027); 7.1 (2028). - Net foreign assets (CFAF billions): 578 (2019); 1,037? (2020 shows "103792" sequence — preserved earlier as 1037?); 792 (2021); 851 (2022); 1,242 (2023); 541 (2024); 383 (2025); 712 (2026); 481 (2027); 713 (2028). - Base Money (M0) (CFAF billions): 992 (2019); 1,421 (2020); 1,916 (2021); 1,631 (2022); 1,717 (2023); 1,825 (2024); 1,940 (2025); 2,055 (2026); 2,175 (2027); 2,302 (2028). - Credit to the economy (CFAF billions): 248 (2019); 026? (2020 shows "026123" sequence — preserved as listed); 1,230? (2021 and beyond show sequences; table lists "2480261230283480376440664367468250145370" — preserved only as presented in table rows above). - Velocity (GDP/M2): 3.4 (2019); 2.8 (2020); 2.6 (2021); 2.5 (2022); 2.5 (2023); 2.5 (2024); 2.5 (2025); 2.5 (2026); 2.5 (2027); 2.5 (2028). - Money Multiplier (M2/M0): 3.0 (2019); 2.6 (2020); 2.7 (2021); 2.8 (2022); 2.8 (2023); 2.9 (2024); 2.9 (2025); 3.0 (2026); 3.0 (2027); 3.0 (2028). ### Banking sector financial soundness indicators (selected) - Regulatory capital to risk weighted assets (percent): 12.7 (2018); 13.2 (2019); 13.5 (2020); 13.9 (2021); 13.6 (2022); 13.5 (June 2021); 14.0 (Dec 2021); 13.6 (June 2022); 13.0 (Dec 2022). - Tier I capital to risk-weighted assets (percent): 11.1 (2018); 12.1 (2019); 12.6 (2020); 13.0 (2021); 12.8 (2022); 12.6 (June 2021); 13.0 (Dec 2021); 13.2 (June 2022); 12.3 (Dec 2022). - Gross NPLs to total loans (percent): 16.8 (2018); 13.5 (2019); 11.8 (2020); 10.4 (2021); 10.2 (2022); 10.0 (June 2021); 9.5 (Dec 2021); 9.8 (June 2022); 10.3 (Dec 2022). - Provisioning rate (percent): 59.8 (2018); 50.5 (2019); 46.7 (2020); 53.5 (2021); 57.5 (2022); 61.6 (June 2021); 63.2 (Dec 2021); 59.0 (June 2022); 55.7 (Dec 2022). - Net NPLs to capital (percent): 54.0 (2018); 42.9 (2019); 41.0 (2020); 31.7 (2021); 27.9 (2022); 25.8 (June 2021); 21.0 (Dec 2021); 25.6 (June 2022); 29.5 (Dec 2022). - Total loans to total assets (percent): 55.0 (2018); 53.8 (2019); 55.8 (2020); 54.9 (2021); 52.2 (2022); 50.4 (June 2021); 49.8 (Dec 2021); 50.6 (June 2022); 53.8 (Dec 2022). - Liquid assets to total assets (percent): 33.5 (2018); 32.3 (2019); 33.4 (2020); 32.8 (2021); 30.8 (2022); 28.1 (June 2021); 28.1 (Dec 2021); 27.5 (June 2022); 30.3 (Dec 2022). *Source: Ministry of Economy and Finance; BCEAO; Malian authorities; and IMF staff estimates and projections.* ### Annex I. Country Engagement Strategy ### Annex I. Country Engagement Strategy ### Background and Conceptual Framework - Mali is assessed as both “structurally fragile” (unable to generate adequate growth) and “fragile to stress” (significant risk of breakdown in the economic system or political order). - Conceptual framework (extension of Taleb’s fragility): - Stress fragility: systems have accelerating sensitivity to harmful stressors and “break” under large stress (e.g., revolutions, coups). - Structural fragility: inability to take advantage of positive shocks (e.g., terms of trade improvements) or to “take off” over time. - Drivers of fragility are grouped into: constraints to growth (shaping structural fragility); stressors and sources of fragility (determining breakdown under shocks). - Counterfactual analysis cited: in the absence of fragility, conflict and violence, Mali’s real GDP per capita could have been 12.6 percent higher than it was in 2019. ### Structural Fragility: Findings and Constraints to Growth - Key findings: - Long-run growth: income per capita grew on average by 1.2 percent per year since 1980. - Poverty: around 42 percent of the population (i.e., over 8.5 million people living on less than $2.3 per day in 2020). - Food insecurity (early 2023): more than 15 percent of the population estimated to be either facing severe food insecurity (761,000 people) or at risk of doing so (2.9 million). - Education: mean years of schooling is 1.6 years on average. - Export concentration: gold mining and raw cotton account for about 80 percent of the country's total exports but only for about 12 percent of its GDP. - Gender inequality: about 7 percent of women have some secondary education; legal environment and social norms limit inheritance rights, physical integrity, and mobility. - Principal constraints to growth and policy implementation: - Security constraints stemming from the 2012 rebellion and subsequent violence, reducing availability and quality of basic social services in affected regions. - The “violence trap”: frequent irregular power turnover raising economic and policy uncertainty, reducing incentives to invest, pay taxes, or formalize business. - Very low educational attainment and lack of investment in education infrastructure. - Lack of trust in public institutions and weak rule of law, resulting in extractive state practices, corruption, low tax collection, and impunity. - Low complexity and diversification of the economy. - High gender-based inequality limiting female entrepreneurship and growth potential. ### Fragility to Stress: Stressors and Sources (Political More Than Economic) - Observations: - The economy has shown resilience to economic shocks and typically recovered to trend income per capita after large shocks; political system has been much more fragile. - Political instability: eight coups since independence in 1960, of which five were successful. - Stressors that destabilize systems: - Demographic pressures: population growth of 3 percent annually over the past twenty years driven by high fertility rates; combined with low education, high unemployment and stagnant incomes can feed social unrest and recruitment by jihadist fighters. - Deterioration in economic conditions due to COVID-19, deterioration of security since 2012, and sanctions. - Declines in public trust after corruption scandals, mishandled elections and coups. - Climate change exposure: severe droughts and floods, high dependence on agriculture, limited mitigation and adaptation capacity. - Destabilization of international relations with key Western development partners after two recent coups. - Sources of fragility determining system break risk: - Financial difficulties of the state: debt increased to 53 percent of GDP in 2022; fiscal position stretched by rapid increase in security spending, public wages and the interest bill, consuming a majority of tax revenues and crowding out social safety net and investment spending. - Excessive political and economic centralization: executive branch dominance at the presidential level, limited devolution despite decentralization reforms and the 2015 Algiers peace agreement. ### Country Engagement Strategy: Priorities and Policy Recommendations - Overarching objective: prioritize reforms that address sources of fragility and constraints to growth, while minimizing destabilizing stressors where possible. - Fiscal and macro priorities: - Return to more sustainable deficit levels in the near term. - Ideally introduce a fiscal responsibility framework that addresses gaps in fiscal management (management of deviations from targets, wage bill setting, fiscal risks including from SOEs, transparency). - Recognize feasibility constraints: some reforms may not be feasible before the 2024 elections or without WAEMU coordination; second-best option is to address fiscal management gaps (especially SOEs, public wage setting and commitment controls) separately. - Public financial management reforms may also be possible in the security sector. - Strengthening growth and resilience is expected to improve public finances over time. - Social protection and inclusion: - Strengthen protection of the most fragile segments of the population. - Governance, transparency, and decision-making: - Remove constraints to good policy decision-making by increasing transparency (including in the mining sector) and digitalizing revenue and payment information to improve policymaker information. - Growth-enhancing reforms: - Address security issues, governance reforms, education and health system reforms, including meaningful vocational training for young labor force entrants. - Actions to help Mali harness a demographic dividend (from transitioning to lower fertility). - Labor market and business environment reforms, including—once the fiscal position is strengthened—a reduction of the tax burden on formal labor (70 percent of wages). - Mitigation of destabilizing stressors: - Ensure robust and sustainable macroeconomic policies and implement climate adaptation policies. ### Capacity Development Priorities - Broad fiscal reform and governance focus (see Annex VIII referenced in source): - Continued progress in revenue administration reforms. - Tax policy reforms, especially streamlining tax exemptions while considering distributive impacts. - Expenditure rationalization: wage policies and SOE management. - Fiscal transparency and governance: a Fiscal Transparency Assessment suggested as useful. - Public financial management: commitment controls and treasury single account. - Statistics: improvements in fiscal, debt, real and external statistics. - Governance framework improvements in line with the Fund’s 2021 governance diagnostic mission to strengthen transparency and rule of law without overburdening administrative capacity. ### Coordination, External Support, and Political Determinants - Coordination with multilateral and bilateral partners is critical: - World Bank and AfDB are key partners in infrastructure and poverty resilience. - European Union active; civil society engaged on political, gender inclusion, cultural and other issues. - Mali’s Strategic Framework for Economic Recovery and Sustainable Development (CREDD 2019-2023) should align partner efforts with Mali’s long-term development vision. - External financing and sanctions: - Post-coup developments disrupted international funding; re-engagement of partners will be important to support structural reforms, fiscal adjustment, and financing needs arising from the security situation to avoid cuts in developmental and social spending. - Elections scheduled to take place in February 2024 are an important determinant of whether external support returns. - Any future sanctions imposed on Mali would restrict international organizations’ ability to engage with the authorities. *Source: Annex I. Country Engagement Strategy (from the provided IMF document).* ### Annex III. Impact of ECOWAS Sanctions and the War in Ukraine ### Annex III. Impact of ECOWAS Sanctions and the War in Ukraine ### Overview - ECOWAS trade and financial sanctions on Mali (January–June 2022), compounded by commodity price rises following Russia’s war in Ukraine, dampened economic activity, increased prices of many goods, and affected fiscal account management, forcing Mali into external debt arrears. - Agricultural production proved resilient and Mali’s economy rebounded in the second half of 2022. ### A. The ECOWAS Sanctions (January–June 2022) - Sanctions imposed on January 9, 2022 included: - suspension of commercial transactions with the rest of ECOWAS except for essential goods and medical products; - suspension of financial transactions with the rest of the region, including access to the money and capital markets; - freeze of public assets held at the BCEAO and regional commercial banks; - suspension of regional financial assistance; - withdrawal of ECOWAS ambassadors to Mali. - On July 3, 2022, economic sanctions were lifted after the transitional government announced elections in February 2024; political sanctions (suspension from ECOWAS decision-making bodies) remain. Findings on economic effects - Trade: - imports fell by 20 percent in the first half of 2022 (year-on-year estimate); - exports declined by only 6 percent in the first half of 2022; - trade with ECOWAS declined by over 30.6 percent for exports and 25.9 percent for imports during the same period; - 70 percent of imported goods from ECOWAS are liquid fuels that were exempt from the sanctions. - Government revenue and spending: - revenue collections dropped by about 17 percent in the first half of 2022 relative to an average collection observed in the same quarters since 2018; - largest drop was in indirect taxes; - tax revenue picked up during Q2 2022 due to an increase in domestic fuel prices (adjusted by the authorities at end-March) and increased trade via alternative routes; - authorities prioritized wage payments, rents and scholarships, and security spending while reducing capital expenditures and delaying non-priority spending. - Deficit and financing: - preliminary execution data point to a fiscal deficit of 2 percent of GDP in the first half of 2022, financed mainly by government deposits in the public banks and bank credit; - the deficit remained below the 2022 semi-annual deficit target of 2½ percent of GDP. - Public debt service and arrears: - authorities defaulted on all external bond payments at end-January 2022 (including regional bondholders, the World Bank and other external creditors) due to cut-off from the BCEAO and payments markets; - by June 2022, the authorities accumulated debt arrears of about 3 percent of GDP, of which about 0.5 percent of GDP were to the external creditors and the rest to regional and domestic bondholders as well as suppliers; - the June 2022 ECF repayments amounting to SDR 3.1 million were repaid automatically by debiting Mali’s SDR holding account; - after sanctions were lifted, Mali repaid arrears to external and regional bondholders, returned to the regional bond market with large issuances, and its long-term issuer outlook was revised from negative to stable in September; domestic arrears may still be an issue. ### B. Russia’s War in Ukraine (February 2022–present) - Commodity supply shocks and trade channel impacts: - sanctions on Russian and Belorussian energy and fertilizer exports and blockade of Ukrainian grain exports caused global supply concerns and surges in oil, food and fertilizer prices. - Mali is heavily affected: roughly one-third of Mali’s wheat imports come from Russia and Ukraine; one quarter of its fertilizers are from Russia and Belarus. - fertilizer and food imports dropped from close to 1 percent of GDP in 2020-21 to 0.5 percent (annualized) in 2022. - Food insecurity and undernourishment: - Mali is classified as a country with severe food insecurity; - prevalence of undernourishment rose from 3.1 percent of the population in 2018 to 9.8 percent in 2021 and is likely to have risen further in 2022; - between June and August 2022 about 1.8 million people (8 percent of the population) were estimated to be in ‘crisis’ according to the Integrated Food Security Phase Classification, including 156,000 in ‘emergency.’ - Fertilizer access and agricultural output: - restricted access to fertilizer did not have as large an impact as initially feared because existing stocks were run down, mitigating the effect on agricultural output in 2022; - rising input prices may hinder the rebuilding of fertilizer stocks for the next planting season and could affect growth in 2023. - Price and inflation pressures: - global food, fertilizer and crude oil prices rose substantially since 2020 (figure references in source); - heightened food and oil prices added to inflationary pressures, with headline, food and transportation inflation rising in 2022. ### External Sector Assessment (Annex IV summary) - Overall assessment: - Mali’s external position in 2021 was moderately weaker than consistent with medium-term fundamentals and desirable policies; - the 7.5 percent current account deficit in 2021 is attributed to a reduction in gold exports, an increase in capital goods imports, and higher government expenditures. - Preliminary data for 2022 suggest an improvement in the current account, owing to higher gold exports and lower capital goods imports, but 2022 sanctions and tighter financial conditions led to a sharp decline in portfolio flows and a sizable financing gap filled by WAEMU pooled reserve drawdowns. - Models indicate a significant misalignment of the exchange rate relative to the fundamental level, though staff cautions use of exchange rate models for Mali given the currency union context. - WAEMU-wide reserves are borderline within Fund reserve adequacy metrics. - Current account dynamics: - the current account deficit narrowed from 7.5 percent of GDP in 2019 to 2.2 percent in 2020 before widening back to 7.5 percent in 2021; - preliminary data for 2022 suggest a mild improvement in the current account from -7.5 percent to -6.9 percent. - EBA-lite current account (CA) model: after assuming a temporary factor of -2 percentage points of GDP for pent-up demand in 2021, EBA-lite estimates point to a CA gap of –1.7 percent of GDP; a depreciation of 8 percent would be required to close the gap. - staff notes gold accounts for 80 percent of Mali’s total exports and is not sensitive to exchange rate changes, so results should be treated with caution. - Real exchange rate (REER) assessment: - the CFAF depreciated by 2.2 percent in real effective terms over 2015 to 2022; - the Fund’s equilibrium exchange rate model finds an 11.3 percent undervaluation of the real exchange rate for Mali; the WAEMU-wide assessment finds a 5.6 percent exchange rate undervaluation; - REER model results contrast with the EBA-lite CA model, which suggests an overvaluation; staff considers CA model results may be more reliable for Mali given the currency union context. - Capital and financial accounts: - net capital inflows increased to 7.7 percent of GDP in 2021 from 3.7 percent in 2020, mostly driven by portfolio investment (1.7 percent of GDP); - rebound in portfolio investment in 2021 followed lifting of 2020 ECOWAS sanctions; 2021 capital goods imports included CFAF 144 billion; - preliminary 2022 data suggest a significant reduction in portfolio investment due to 2022 sanctions and tighter global/regional financial conditions, creating a sizable financing gap assumed to be filled by withdrawals of pooled WAEMU reserves; - liquidity issues in the regional securities market are likely to persist in 2023, posing risks to sustainability of the current account deficit. - FX intervention and reserves: - WAEMU pooled reserves were around CFAF 14 trillion at end-2021 (equivalent to 5.6 months of 2022 prospective imports or 79.3 percent of the BCEAO’s sight liabilities); - as of December 2022 preliminary data show foreign reserves fallen to CFAF 11.4 trillion (roughly equivalent to 4.5 months of projected imports or 63.2 percent of the BCEAO’s sight liabilities); - WAEMU Staff Report assessment: level of reserves at end-2022 (4.5 months of imports) and medium-term projection at end-2027 (4.6 months) are assessed as adequate, though at the lower end of the range. ### Potential Policy Responses and Authorities’ Views - Policy implications and staff recommendations: - authorities should reduce the fiscal deficit to the WAEMU deficit ceiling to alleviate external pressures; - resolve security issues and political uncertainty to ensure mining-sector growth and adequate financing from regional bond markets; - secure financing sources other than the regional market to mitigate tighter liquidity conditions; - clear external arrears, especially to IFIs, in a timely manner; - restore fiscal discipline and resolve security issues to reduce political and policy uncertainties and rebuild investor confidence. - Authorities’ views: - authorities agreed broadly with external sector analysis but differed on medium-term current account projections due to differing gold price assumptions; they agreed to use updated assumptions for medium-term projections; - authorities acknowledged tighter liquidity in the regional securities market and are working on alternative financing sources including loan syndication and bilateral sources; - the BCEAO committed continued support to member countries should further liquidity needs arise; authorities also acknowledged fiscal consolidation as a solution to alleviate external sector pressure. *Source: Annex III and Annex IV, 1mliea2023001 - Annex III. Impact of ECOWAS Sanctions and the War in Ukraine.* ### Annex V. Fund Engagement and Performance ### Annex V. Fund Engagement and Performance ### Recent Fund Engagement (2019–2022) - Mali engaged with the Fund through a three-year Extended Credit Facility (ECF) approved in August 2019 (75 percent of quota). - Second and third reviews completed on February 22, 2021. - Total disbursements under the ECF arrangement: SDR 80 million (about US$110 million, or 0.6 percent of 2019 GDP). - The ECF-supported reforms were interrupted by coups in August 2020 and May 2021, and by ECOWAS sanctions imposed in January 2022. The program expired in August 2022. - Rapid Credit Facility (RCF): Board approved a disbursement around SDR 147 million (about US$200 million, or just over 1 percent of 2020 GDP) on April 30, 2020 as part of COVID-19 response. - Catastrophe Containment Relief Trust (CCRT): Mali received all five tranches of debt service relief totaling SDR 30 million (around US$40 million, 0.2 percent of 2020 GDP) covering April 14, 2020 to April 13, 2022. - SDR allocation: Mali received just under SDR 180 million (around 1.3 percent of GDP) as part of the 2021 general SDR allocation. - The regional WAEMU central bank (BCEAO) received the funds and on-lent them to the Malian government in CFAF, who used it to finance the fiscal deficit. ### Program Objectives and Policy Focus of the 2019–2022 ECF - Underpinning objective: support the authorities’ development strategy (CREDD) for strong and inclusive growth through job creation, economic diversification, and greater resilience. - Short-term policy focus: - Increase revenue collection to allow for priority development spending. - Reform the energy sector. - Medium-term ECF goals: - (i) Expand fiscal space for productive investment and priority social spending, while adhering to the WAEMU fiscal deficit convergence criteria. - (ii) Strengthen the business environment. - (iii) Improve governance and combat corruption. - (iv) Sustain capacity development. ### Disruptions to Engagement and Continuity - Engagement was disrupted by: - COVID-19 pandemic: constrained travel and engagement, initial interruption to program momentum. - Irregular changes in government (August 2020 and May 2021): periods of uncertainty about government recognition; staff proceeded cautiously but continued low-key capacity development; resumed engagement and capacity development subsequently. - ECOWAS sanctions (January–July 2022): interrupted program engagement for six months, forced accumulation of arrears to external creditors, and created uncertainty around debt sustainability under a baseline scenario of a freeze in government deposits. - Despite disruptions, staff continued program dialogue; the Board concluded the second and third reviews in February 2021. ### Program Performance and Reform Outcomes - Fiscal performance and public finances: - All but one of the fiscal performance criteria were estimated to have been met for what would have been the fourth, fifth and sixth reviews (covering end-2020 to end-2021). - Overall fiscal deficit narrowed to 4.8 percent of GDP in 2021, below the program’s ceiling of 5½ percent of GDP, albeit due to slower investment execution. - Structural reforms: - Of 14 outstanding structural benchmarks, authorities completed half. - Met benchmarks included: RCF-related transparency commitments; introduction of commitment plans in all ministries; extending e-filing and e-payment of taxes to all large enterprises. - Support for governance and wage bill policy reforms proved more difficult in the fragile political environment. - Specific structural benchmark statuses (selected): - Conduct a comprehensive review of tax expenditures: 30-Jun-21 — Met. - Extend e-filing and e-payment of taxes to all large enterprises: 30-Jun-21 — Met. - Introduce commitment plans in all ministries: 31-Dec-21 — Met. - Publication of documentation on large public procurement projects related to COVID-19 and names of companies and beneficial owners issued contracts: 31-May-21 — In progress as of August 2022 when ECF ended. - Open access to e-payments platform to other banks: 31-Dec-21 — In progress as of August 2022 when ECF ended. - Implement automatic data sharing between the Treasury and the revenue collecting agencies: 30-Sep-21 — In progress as of August 2022 when ECF ended. - Provide for government approval of the revised draft Law on the Prevention and Suppression of Illicit Enrichment (Law No. 2014‑015): 31-Mar-20 / 31-Mar-21 — In progress as of August 2022 when ECF ended. ### Macroeconomic Performance under the 2019–2022 ECF - Growth, inflation, fiscal and external developments (high-level observations from program figures): - Real GDP growth: impacted by COVID-19 pandemic, political turmoil, ECOWAS sanctions and Russia’s war in Ukraine; figures show a sharp hit to growth relative to program projections. - CPI inflation: accelerated significantly, driven by higher food and energy prices and trade disruptions. - Tax revenue (percent of GDP): fell due to economic recession and supportive tax measures. - Priority social spending (percent of GDP): scaled up to support vulnerable populations. - Wage bill (percent of GDP): increased, including wage increases for teachers and unification of the civil service wage bill. - Capital expenditure (percent of GDP): reduced to meet fiscal targets in the face of other fiscal pressures. - Fiscal balance (percent of GDP): larger deficits resulted from lower tax revenues and higher spending. - Public debt (percent of GDP): higher public debt ratio observed. - Current account (percent of GDP): more volatile, partly reflecting high volatility in terms of trade. - Terms of trade (index, 2017=100): experienced notable variability. ### Risk Assessment (RAM) — Key Risks, Likelihoods, Expected Impacts, and Mitigating Policies - Global risks / conjunctural shocks: - Intensification of regional conflict(s) or escalation of Russia’s war in Ukraine: - Relative Likelihood: High; Expected Impact: Medium. - Impact: supply shortages (e.g., fertilizer), higher consumer price inflation. - Mitigations: Targeted social measures; create fiscal space to scale up social spending; continue structural reforms to diversify the economy; bolster trade links with alternative suppliers. - Commodity price volatility: - Relative Likelihood: Medium; Expected Impact: High. - Impact: higher food and energy import bills, social/economic tensions, lower capital investment. - Mitigations: Create fiscal space to scale up social spending; targeted social measures; raise domestic food supply and request aid; review mining taxation fiscal regime; update revenue projections in multi-year fiscal framework; enhance resilience against commodity price shocks. - Monetary policy miscalibration in major economies: - Relative Likelihood: Medium; Expected Impact: Medium. - Impact: spikes in core and headline inflation, wage-price pressures, downward pressure on gold prices, reduced gold production and export revenues, cotton price falls. - Mitigations: Create fiscal space for priority spending through revenue mobilization and gradual cuts in non-targeted subsidies while protecting growth-enhancing capital spending; avoid real increases in the public sector wage bill; diversify economy away from mining and narrow agricultural base. - Abrupt global slowdown or recession: - Relative Likelihood: Medium; Expected Impact: High. - Impact: lower gold and cotton prices (these account for over 85 percent of Mali’s exports), spike in EMDE risk premia could lead to sovereign debt distress given limited absorption capacity in Debt Sustainability Analysis (DSA). - Mitigations: Create fiscal buffers; enhance resilience via updated revenue projections; raise domestic food supply and request aid. - Global structural risk: - Extreme climate events: - Relative Likelihood: Medium; Expected Impact: Medium. - Impact: adverse effects on food production and livelihoods given large share of self-sustenance agriculture. - Mitigations: Build resilience in agriculture; broaden economic base and expand non-agricultural activities over the longer term. - Domestic/regional risks: - Significant deterioration of security situation: - Relative Likelihood: High; Expected Impact: High. - Impact: higher military spending crowding out development priorities; strain on emergency aid due to internally displaced population. - Mitigations: Restore collaboration with international security forces and aid organizations; adhere to 2015 decentralization agreement with shared responsibilities. - Risks of socio-political instability (delay in return to democratic rule beyond February 2024): - Relative Likelihood: Medium/High; Expected Impact: High. - Impact: potential new ECOWAS sanctions, constrained imports, frozen financial transactions, heightened food insecurity and poverty. - Mitigations: Adhere to agreed timetable for return to democratic rule; adhere to 2015 decentralization agreement with shared responsibilities. ### Alternative Economic Scenario (Downside, Based on Materialized Risks) - Context and main assumptions: - Scenario broadly based on characteristics of the 2022 ECOWAS sanctions. - Assumes delaying Presidential elections until 2025, triggering new international sanctions and banning access to external and regional financing markets. - Specific scenario assumptions include: (i) border closures, (ii) suspension of all trade and financial transactions except for essential consumer and medical goods, (iii) a freeze of all government assets at the WAEMU regional central bank and in all commercial banks, and (iv) suspension of all regional financial assistance. - Sanctions would also trigger a halt in IFI engagement and financing, including deferring all project and budget support until after the elections. - Expected macroeconomic outcomes if scenario materializes: - External trade, remittances and foreign investment decline, negatively affecting domestic activity, private consumption and investment, and sectoral performance. - Real GDP would grow by only [text truncated in source at this point]. - Fiscal and external implications: - Fiscal deficits would remain in a 5-6 percent range. - Inability to access regional markets would result in a financing gap. - Debt would enter unsustainable territory due to protracted debt arrears. *Source: Annex V. Fund Engagement and Performance (extracted from the provided IMF document content).* ### 1.7 percent in 2024 instead of 5.1 percent and also in ### 1mliea2023001 - 1.7 percent in 2024 instead of 5.1 percent and also in ### Adverse scenario: macroeconomic impacts and key indicators - Growth: - Scenario example: "1.7 percent in 2024 instead of 5.1 percent" and growth would remain below trend in 2025. - Current account: - Would improve in a downside scenario due to import compression and because of the fall in incomes (and less import demand). - Financing needs and gaps: - Authorities would face gross financing needs of more than 14 percent of GDP in 2024 and 2025, up from 12.2 and 13.3 percent in the baseline. - Net financing gap of 4.8 percent, up from zero in the baseline. - During the 2022 embargo, sanctions caused inability to service regional and external debt due to frozen access to payment systems; assuming similar scope, authorities could accumulate about 6 percent of GDP in regional and external debt arrears. - Fiscal outcomes: - Tax revenues would likely see a dip of 2-3 percentage points due to lower trade flows and taxpayer compliance. - Deficit projections in absence of IFI project or budget support: - Could rise to 6 percent of GDP in 2024. - Could be 5 percent in 2025. - Fiscal policy would be reduced to liquidity management and capital spending would be reduced to a minimum. - Public debt: - Public debt would become unsustainable with protracted domestic and external arrears, with debt-to -GDP reaching over 60 percent in 2025. - Historical precedent: - During the January-June 2022 sanctions regime, revenue dropped by 1 percentage points relative to projections. ### Policy response options if the adverse scenario materializes - Expenditure-side options: - Additional prioritization of current spending may be considered, on a transparent basis and aiming to minimize the negative impact on long-term growth. - Consider postponing new spending initiatives. - Support to vulnerable households would likely be reduced due to lack of financing for basic government operations. - Revenue-side options: - Continue tax and customs administration reforms, with priority given to reforms more likely to close existing loopholes. - Structural reform approach: - Structural reforms would likely take a backseat as authorities would be in a "survival" mode. - Efforts should focus on preventing reform reversals, including protecting achievements such as the expansion of the single treasury account and use of digitalization tools to strengthen revenue and spending accountability and transparency. - Financing alternatives: - Authorities would need to find alternative options to raise financing, including expanding the donor list. - Prompt resumption in IFI financing would be critical; settlement of arrears would be a precondition. ### Capacity Development Strategy: priorities and interventions - Overall orientation: - CD priorities oriented towards maintaining macroeconomic stability in a challenging context and with constrained external financing. - Priorities classified into three main areas: (i) improving domestic revenue mobilization, (ii) improving efficiency of public expenditure, and (iii) improving quality of statistics. - Addressing governance weaknesses and managing climate change risks should be part of Mali’s medium-term CD priorities. - Improving domestic revenue mobilization: - Continue long-standing technical assistance with support from the Revenue Mobilization Trust Fund. - Revenue administration capacity: - Progress includes introduction of e-filing and e-payment to large enterprises. - Further digitalization by extending e-filing and e-payment and facilitating electronic receipts of customs declarations could be pursued. - Establishing a medium-size taxpayers’ unit in addition to the large taxpayers’ unit to customize services and enforcement and develop specific risk-based compliance strategies. - Tax policy reforms: - Tax expenditure continues to weigh heavily on revenues. - An assessment of tax expenditures completed in 2021; progress in measuring, reporting, and publishing tax expenditures. - Build on this work and streamline tax expenditure, including VAT, income tax and customs duty exemptions. - Developing a Medium-Term Revenue Strategy would be helpful. - Improving the efficiency of public expenditure: - Expenditure reforms: - Reform of public wage policies could greatly enhance efficiency given growing share of the wage bill. - IMF stands ready to assist with a CD program and advise on public wage setting mechanism if authorities begin payroll reforms. - Public financial management (PFM) capacity: - Cash management focus on the treasury single account (TSA); sanctions caused a setback for TSA reforms. - Strengthening commitment controls to control spending and prevent accumulation of arrears. - Build on the Public Investment Management Assessment (PIMA) prepared in 2021 to improve appraisal, prioritization and execution of projects. - Improve automatic data sharing between the Treasury and revenue-collecting agencies to make budgeting more efficient. - Improving data quality for national accounts, fiscal and debt statistics: - Significant data availability and quality issues remain in national accounts and fiscal- and debt statistics. - Real and external sector statistics: - Continued technical assistance to rebasing national accounts, producing quarterly national accounts data, and improving CPI compilation methodology. - Fiscal and debt statistics: - Address debt flow-stock discrepancies, reliability and timely provision of external and domestic debt data, government position in the banking sector by level of government, classification and registration of public arrears and data on contingent liabilities. ### Financial integrity, governance, and climate priorities - AML/CFT and governance: - As of March 2023, Mali remains on the Financial Action Task Force (FATF) gray list of countries under increased monitoring. - Priority to improve measures related to Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT). - Urgent need to address transparency and AML/CFT supervision in the mining sector given its importance and vulnerability to corruption and terrorism financing. - Mali committed to implementing the Action Plan agreed with the FATF but may need support on: comprehensive risk assessment of money laundering/terrorism financing risks associated with legal persons; developing a risk-based approach to AML/CFT supervision; and implementation of UN terrorism financing sanctions. - Removing the country from the gray list would be very beneficial for improving the investment climate and business environment. - Climate change: - High exposure to climate change; medium-term priority to build capacity to manage economic and fiscal fallout of climate shocks and develop adaptation and mitigation strategies. - Possible support includes diagnostic tools such as the Climate-Public Investment Management Assessment and support for debt management capacity in dealing with green debt instruments. *Source: Excerpt from 1mliea2023001 PDF chapter/section.* ### 7. Close cooperation with development partners and coordination of TA delivery across ### 7. Close cooperation with development partners and coordination of TA delivery across agencies (World Bank, United Nations, African Development Bank, EU etc.) ### Coordination and technical assistance (TA) - Close cooperation with development partners and coordination of TA delivery across agencies (World Bank, United Nations, African Development Bank, EU etc.) is emphasized as of utmost importance to avoid overlaps and deliver consistent advice without overburdening authorities. - Technical assistance provided since the previous Article IV (selected areas and intensity): - Improving data quality and frequency of balance of payment statistics: 3 assistance missions between November-2018 and March 2022 (Statistics). - Debt management (debt recording, reporting and monitoring; development of debt strategies; Debt Sustainability Analysis): 11 assistance missions between February-2018 and February 2023 (Monetary and Capital Markets). - Governance assessment and follow-up of its recommendations: 3 assistance missions between April-2021 and July 2022 (Legal). - Government Finance Statistics, Treasury and Accounting (improve quality and coverage of Government Finance Statistics; Cash management and Treasury Single Account): 12 assistance missions between April-2019 and February 2023 (Fiscal Affairs). - Macro-fiscal framework, Budget preparation and PFM (budget execution controls, commitment controls; public investment management; macro-fiscal forecast and identification of fiscal risks): 24 assistance missions between February-2018 and February 2023 (Fiscal Affairs). - Improving the quality and frequency of national accounts: 12 assistance missions between March-2018 and November 2022 (Statistics). - Revenue mobilization, including improvement of revenue administration and tax- and customs policies: 25 assistance missions between April-2018 and February 2023 (Fiscal Affairs). - Tax policy: 6 assistance missions between May 2018 and February 2023 (Fiscal Affairs). - Resident Representative: Mr. Ahmed Zorome has been the Fund Resident Representative in Bamako since October 2021. ### Relations with the Fund — key financial and membership facts - Membership Status: Joined: September 27, 1963. - Article VIII obligations: Accepted (as of June 1, 1996 Mali and other WAEMU members accepted the obligations of Article VIII, Sections 2, 3, and 4). - Quota and holdings (General Resources Account): - Quota: 186.60 SDR Million (100.00 percent of quota). - IMF's Holdings of Currency (Holdings Rate): 153.28 SDR Million (82.14 percent of quota). - Reserve Tranche Position: 33.33 SDR Million (17.86 percent of quota). - SDR Department: - Net Cumulative Allocation: 268.21 SDR Million (100.00 percent of quota). - Holdings: 272.03 SDR Million (101.42 percent of quota). - Outstanding Purchases and Loans: - RCF Loans: 147.67 SDR Million (79.14 percent of quota). - ECF Arrangements: 240.74 SDR Million (129.01 percent of quota). ### Latest financial commitments and outright loans (dates and exact amounts) - Arrangements: - ECF Aug 28, 2019 – Aug 21, 2022; Amount Approved (SDR Million) 139.95; Amount Drawn (SDR Million) 80.00. - ECF Dec 18, 2013 – Dec 17, 2018; Amount Approved (SDR Million) 186.60; Amount Drawn (SDR Million) 186.60. - ECF Dec 27, 2011 – Jan 10, 2013; Amount Approved (SDR Million) 30.00; Amount Drawn (SDR Million) 6.00. - Outright Loans: - RCF Apr 30, 2020 (Drawn May 04, 2020); Amount Approved (SDR Million) 146.67; Amount Drawn (SDR Million) 146.67. - RCF Jun 10, 2013 (Drawn Jun 18, 2013); Amount Approved (SDR Million) 10.00; Amount Drawn (SDR Million) 10.00. - RCF Jan 28, 2013 (Drawn Feb 04, 2013); Amount Approved (SDR Million) 12.00; Amount Drawn (SDR Million) 12.00. - Note: Undrawn outright disbursements (RFI and RCF) expire automatically 60 days following the date of commitment (Board approval date). ### Overdue obligations and projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs) - Forthcoming payments by year: - 2023 Principal: 22.50; Charges/Interest: 0.00; Total: 22.50. - 2024 Principal: 36.12; Charges/Interest: 0.00; Total: 36.12. - 2025 Principal: 54.79; Charges/Interest: 0.00; Total: 54.79. - 2026 Principal: 72.35; Charges/Interest: 0.00; Total: 72.36. - 2027 Principal: 70.65; Charges/Interest: 0.00; Total: 70.66. ### HIPC Initiative, MDRI, and CCR implementation (exact figures) - Implementation of HIPC Initiative: - Decision point date: Sep 1998 (Original Framework); Sep 2000 (Enhanced Framework). - Assistance committed by all creditors (US$ Million): 121 (Original Framework); 417 (Enhanced Framework). - Of which: IMF assistance (US$ million): 14 (Original Framework); 45.21 (Enhanced Framework). - SDR equivalent (millions): 10.8 (Original); 34.74 (Enhanced). - Completion point date: Sep 2000 (Original); Mar 2003 (Enhanced). - Disbursement of IMF assistance (SDR Million): - Assistance disbursed to the member: 10.8 (Original); 34.74 (Enhanced); Total 45.54. - Interim assistance: -- (Original); 9.08 (Enhanced); 9.08. - Completion point balance: 10.8 (Original); 25.66 (Enhanced); 36.46. - Additional disbursement of interest income: -- (Original); 3.73 (Enhanced); 3.73. - Total disbursements: 10.8 (Original); 38.47 (Enhanced); 49.27. - Implementation of Multilateral Debt Relief Initiative (MDRI): - MDRI-eligible debt (SDR Million): 75.07. - Financed by: MDRI Trust 62.44; Remaining HIPC resources 12.63. - Debt Relief by Facility (SDR Million) — Delivery Date January 2006: Eligible Debt GRA PRGT Total N/A 75.07 75.07. - Implementation of Catastrophe Containment and Relief (CCR): - Board decisions and amounts disbursed (SDR million): Apr 13, 2020 7.30 disbursed 7.30; Oct 30, 2020 7.50 disbursed 7.50; Apr 01, 2021 7.70 disbursed 7.70; Oct 06, 2021 5.70 disbursed 5.70; Dec 15, 2021 1.80 disbursed 1.80. ### Safeguards, exchange rate, and trade policy - Safeguards Assessments: - The Central Bank of West African States (BCEAO) assessment completed in 2018 found a robust control environment and broadly appropriate governance arrangements; key recommendations from 2013 have been implemented. - The bank adopted International Financial Reporting Standards (IFRS) in 2015 and strengthened external auditor selection criteria. - Audited financial statements since the last assessment have had unmodified (clean) audit opinions and are published on a timely basis. - An update assessment of the BCEAO is currently in progress. - Exchange Rate Arrangements: - Mali is a member of WAEMU. - Effective January 1, 1999, the CFA franc was pegged to the Euro at a rate of CFAF 655.96 = EUR 1. - Mali’s exchange system has no restrictions on making payments or transfers for current international transactions and the country does not engage in multiple currency practices. - Trade policy and tariffs: - Mali shares a common trade policy with WAEMU members; the common external tariff (CET) was adopted in January 2000. - Between 1997 and 2003 WAEMU tariff reform reduced the simple average custom duty from 22 percent to 15 percent; the maximum rate is currently 20 percent on most items. - Mali’s exports to the European Union generally enjoy exemption from import duties under the Everything but Arms initiative; Malian goods enjoy nonreciprocal preferential access under the Generalized System of Preferences; Mali is eligible to benefit from the United States’ African Growth and Opportunity Act. ### Statistical issues and data adequacy - General: Data provision has some shortcomings, but is broadly adequate for surveillance. - National Accounts: - INSTAT released in August 2015 a new series of annual national accounts covering 1999-2013 in accordance with SNA93. - Quarterly national accounts have been implemented with AFRITAC West support. - A rebasing exercise is ongoing, aiming to overhaul and expand the coverage of value added. Full results, including historical series, are expected by end-2023. - Price Statistics: - INSTAT has been compiling and publishing a harmonized consumer price index (CPI) for Bamako monthly since early 1998. - The harmonized CPI was updated in 2010, with 2008 as the new reference year. - Government Finance Statistics: - Broadly adequate; progress toward the harmonized table of government financial operations (TOFE) based on the Government Finance Statistics Manual 1986, with STA, AFRITAC West and AFRISTAT assistance. - Further efforts needed to improve the timeliness and coverage of the TOFE, expand coverage to public agencies and local governments, and strengthen coverage of domestic financing items. - Quarterly budget execution reports are posted on the Ministry of Finance website on a timely basis. - Monetary and Financial Statistics: - WAEMU (BCEAO) MFS are broadly adequate and institutionally comprehensive. - Dissemination of monthly monetary data from the BCEAO takes four to six weeks consistent with e-GDDS recommendations; data posted on the BCEAO website have a considerably longer lag. - Accuracy is hampered by the use of 1990 sorting coefficients to estimate cross border amounts of banknotes among BCEAO countries. - Standardized Report Forms (in line with the Monetary and Financial Statistical Manual) are still not regularly used to report monetary data to the IMF. - External Sector and Balance of Payments: - Responsibility for compiling and disseminating balance of payments statistics assigned to the BCEAO in December 1998; the BCEAO national agency finalizes data toward mid-November of the following year and publishes thereafter. - External sector statistics exhibit serious deficiencies in several areas: remittances, foreign direct investment, portfolio flows, and large in-kind projects not properly captured. - Adoption of BPM6 methodology: Mali reports balance of payments and international investment position data according to BPM6; Mali submitted 2013 BOP and IIP data for publication in the 2015 BOPSY and 2015 IFSY. - A foreign private capital survey (FPC) from DFI called “PRC CPE” is underway across Franc Zone countries; foreign assets of the private nonbanking sector are not well covered. - Data standards and quality: - Mali has been participating in the General Data Dissemination System (GDDS) and its successor e-GDDS since September 2001. - No data ROSC mission has been done in Mali. ### Common Indicators Required for Surveillance (selected table entries preserved exactly) - Exchange Rates: Date of latest observation Current; Date received Current; Frequency of data D; Frequency of reporting M; Frequency of publication M. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation December 2022; Date received March 2023; Frequency of data M; Frequency of reporting M; Frequency of publication M. - Reserve/Base Money: Date of latest observation December 2022; Date received March 2023; Frequency of data M; Frequency of reporting M; Frequency of publication M. - Broad Money: Date of latest observation December 2022; Date received March 2023; Frequency of data M; Frequency of reporting M; Frequency of publication M. - Central Bank Balance Sheet: Date of latest observation December 2022; Date received March 2023; Frequency of data M; Frequency of reporting M; Frequency of publication M. - Consolidated Balance Sheet of the Banking System: Date of latest observation January 2023; Date received March 2023; Frequency of data M; Frequency of reporting M; Frequency of publication M. - Interest Rates: Date of latest observation March 2023; Date received April 2023; Frequency of data I; Frequency of reporting W; Frequency of publication M. - Consumer Price Index: Date of latest observation March 2023; Date received April 2023; Frequency of data M; Frequency of reporting M; Frequency of publication M. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation December 2022; Date received March 2023; Frequency of data M; Frequency of reporting Q; Frequency of publication A. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation December 2022; Date received March 2023; Frequency of data M; Frequency of reporting I; Frequency of publication A. - External Current Account Balance: Date of latest observation 2021; Date received November 2022; Frequency of data A; Frequency of reporting A; Frequency of publication A. - Exports and Imports of Goods and Services: Date of latest observation 2021; Date received November 2022; Frequency of data A; Frequency of reporting A; Frequency of publication A. - GDP/GNP: Date of latest observation 2022; Date received March 2023; Frequency of data A, Q; Frequency of reporting A, Q; Frequency of publication A, Q. - Gross External Debt: Date of latest observation December 2022; Date received February 2023; Frequency of data A; Frequency of reporting A; Frequency of publication A. - International Investment Position: Date of latest observation 2022; Date received March 2023; Frequency of data A; Frequency of reporting A; Frequency of publication A. ### Debt sustainability (joint Bank-Fund DSA summary) - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Granularity in the risk rating: Limited space to absorb shocks. - Application of judgment: Yes. - Key findings: - Mali’s public debt remains at moderate risk of overall debt distress—unchanged from the 2021 debt sustainability analysis. - Public debt increased rapidly over the past five years (by 14 percentage points to 50.4 percent of GDP in 2021) and increased relative to the 2021 DSA. - Over the medium term, the public debt-to-GDP ratio is projected to reach around 60 percent. - Mechanical risk rating of external debt distress is low; however, under a customized scenario where external debt is classified as quasi-residence-based, two external debt service indicators persistently breach distress thresholds during the forecast horizon. - Stress tests indicate the PV of the public debt-to-GDP ratio exhibits a prolonged and substantial breach of its benchmark under a scenario of commodity price shocks. - ‘Below-the-line operations’ (government spending not captured by the fiscal deficit) have contributed to rising public debt; a customized scenario with stock-flow adjustments assuming continuation of these operations shows public debt rising above the threshold. - Policy implications and recommendations: - Stronger fiscal consolidation will be necessary to ensure future debt sustainability. - Limit future borrowing to concessional terms to minimize interest costs. - Resolve security and political issues to improve debt outlook. - Prudent cash management and clear and timely communication with creditors are required to manage liquidity shortfalls in the face of tighter financial conditions in the regional securities market. *Prepared by Staff of the International Monetary Fund in Consultation with the World Bank; May 9, 2023.* ### 1. Mali’s public debt covers the external and domestic obligations of the central ### 1. Mali’s public debt covers the external and domestic obligations of the central government (Text Table 1 and 2) ### Coverage and debt reporting - Public debt reported covers the external and domestic obligations of the central government; state and local government entities do not borrow directly on their own. - A detailed breakdown of SOE debt is not available; SOE liabilities are estimated to be large. Staff support authorities’ efforts to broaden public debt reporting to include SOEs and other public institutions. - External debt in the DSA is classified by currency denomination due to data limitations; staff cannot track residency of holders of government securities. Rule-of-thumb estimates based on auction data suggest external debt defined by creditor residency is likely to be significantly larger. DSA model-based outputs about external debt sustainability should be treated with more caution. - Source note used in figures and tables: "Source: Malian authorities, IMF Staff Calculations." ### Contingent liabilities and stress-test calibration - A contingent liability test with tailored magnitude of shocks is applied to reflect potential impacts of additional liabilities. - SOE-related contingent liability shock is assumed to be 8 percent of GDP (6 percentage points higher than the default setting), reflecting possible SOE liabilities adding to public debt; known liabilities of EDM amount to 5 percent of GDP. - Financial sector shock is set at the default level of 5 percent of GDP. - PPP component calibrated to 1.3 percent of GDP, based on PPP capital stock estimate of 3.7 percent of GDP from the World Bank PPP database. - Total contingent liabilities assumed in the stress test: 14 .3 percent of GDP. ### Public debt stock composition and key statistics (end-2021) - Total public debt stock at end-2021: 50.4 percent of GDP. - External debt: CFAF 3,107 billion (28.3 percent of GDP). - Multilateral creditors: CFAF 2,371 billion (21.6 percent of GDP). - Bilateral creditors: CFAF 737 billion (6.7 percent of GDP). - Main external creditors (accounting for 90 percent of external debt): IMF, World Bank, African Development Fund, West African Development Bank, Islamic Development Bank, governments/agencies of France (French Development Agency), China, India, Abu Dhabi (Abu Dhabi Development Fund). - Around 30 percent of Mali’s external debt is denominated in euros (not exposed to exchange rate risk given the CFAF peg to the euro). - External debt average weighted interest rate: 0.6 percent; average maturity: more than 10 years. - Public debt service as a percentage of GDP: around 6 percent in 2021, broadly stable since 2015. - Selected entries from Text Table 3 (Debt Stock at Year-End, 2015-2021, Billions of CFAF): - Total: 2015: 2,344.5; 2016: 2,991.0; 2017: 3,209.4; 2018: 3,608.0; 2019: 4,123.3; 2020: 4,758.6; 2021: 5,521.3. - (percent of GDP): 2015: 30.3; 2016: 36.0; 2017: 36.0; 2018: 38.1; 2019: 40.7; 2020: 46.9; 2021: 50.4. - External: 2015: 1,754.0; 2016: 2,081.3; 2017: 2,227.5; 2018: 2,349.4; 2019: 2,698.9; 2020: 2,995.2; 2021: 3,107.0. - Multilateral (2021): 2,370.5; IMF (2021): 331.2; World Bank (2021): 1,180.1; West African Development Bank (2021): 142.1; African Development Fund (2021): 451.1. - Official bilateral (2021): 736.6; China (2021): 280.6; India (2021): 60.6; Abu Dhabi (2021): 162.2. - Domestic: 2015: 590.5; 2016: 909.7; 2017: 981.9; 2018: 1,258.6; 2019: 1,424.4; 2020: 1,763.3; 2021: 2,414.3. - T-bills (2021): 127.7; T-bonds (2021): 2,144.6; Syndicated Bonds (2021): 0.0; Sukuk Bonds (2021): 0.0. ### Domestic debt profile and 2022 liquidity pressures - Domestic debt rose from 8.1 percent of GDP in 2015 to 22.1 percent of GDP in 2021; largely short- and medium-term treasury securities predominantly held by banks in Mali and WAEMU. - Domestic debt composition: mostly treasury bills and bonds issued on WAEMU regional market; includes syndicated loans with regional banks carrying a premium of about 200 basis points over regional market securities. - Average effective interest rates: domestic debt 6.1 percent vs external debt 0.6 percent. - Ninety percent of Mali’s domestic debt stock consists of T-Bonds with maturity of more than 1 year. - SDR allocation in 2021 was received by the regional central bank (BCEAO) and on-lent to WAEMU member countries in CFAF, recorded as domestic debt for DSA purposes. - Gross financing needs in 2022: around 10 percent of GDP; met fully through regional markets and regional syndicated bonds due to drying up of most external financing after socio-political turmoil. - ECOWAS sanctions in first half of 2022 cut Mali off regional securities market, payments, and financial system; led to sizable arrears. Sanctions lifted in July 2022; government repaid substantial arrears and regained market access. - Mali fulfilled around 80 percent of its revised annual issuance (65 percent of its gross financing needs) in 2022 through debt or syndicated loans. - Staff preliminary estimate: domestic arrears in the range of around 1.5 -3 percent of GDP; external arrears estimated around 0.1 to 0.2 percent of GDP (both estimates flagged as preliminary/cautionary). - Regional market conditions: after initial success, early 2023 showed regional market saturation—several issuances undersubscribed or cancelled; preliminary April 2023 data indicate outstanding domestic arrears have fallen somewhat. ### Underlying macroeconomic assumptions and projections (baseline) - GDP: - 2020-2022 average: 1.8 percent. - Expected rebound to above 5 percent in 2023 and 2024. - Estimated potential growth rate over the medium term: 5 percent. - Drivers of rebound: higher mining output (new gold discoveries in 2022, new lithium projects), favorable medium-term gold price projections, strong agricultural output barring shocks, reduced political uncertainty after assumed 2024 presidential elections, resumption in IFI budget support. - Fiscal policy: - Authorities plan to maintain fiscal deficits close to 5 percent of GDP in 2023 (a pre-election year). - Continued increases in financing needs around 13 percent of GDP in 2023. - Authorities’ multiyear budget envisages gradual consolidation during 2024-25, mainly through revenue administration measures and activation of delayed tax measures introduced in 2022. - Under current policies, fiscal deficit expected to reach WAEMU’s 3-percent-of-GDP ceiling by 2026. - Financing mix: - External financing fell from over CFAF 120 billion in 2021 to around 66 billion in 2022 (6 percent of gross financing needs). - No external budget support in 2022; external financing reflected project support only. - External budget support not expected to return in 2023 and 2024; some project support expected, especially from the World Bank. - Gross financing needs expected to be met largely by domestic issuances in near term; external financing projected to rise in medium term—accounting for over 20 percent of gross financing needs in 2027 (reflecting significant increase in IDA credit disbursements under new IDA borrowing terms). - Current account: - 2021 deficit: 7.5 percent of GDP. - Expected to fall to 6.9 percent of GDP in 2022 and to around 3-4 percent over the medium term. - Improvement driven by elevated gold price, normalized fuel prices, and gradual fiscal normalization. ### Realism checks, debt dynamics, and public investment - Realism tool comparisons indicate baseline projections broadly in line with historical precedent and comparable countries. - Debt dynamics: public debt as percent of GDP shows a more gradual increase in near- to medium-term relative to the past five years, partly due to projected growth rebound. A sizable residual for past debt increase partly due to stock-flow adjustments where government spending not captured by fiscal deficit contributes to debt accumulation. - Fiscal adjustment: projected three-year change in primary balance (2022-24) is 0.7 percentage points of GDP, below the 75th percentile of approved Fund-supported LIC programs since the 1990s. - Public investment: has been below expected level under 2021 DSA but projected to rise to a level consistent with previous DSA in the near term. ### Country classification and stress-test framework - Debt carrying capacity assessed as "medium." - Composite indicator score: 2.90 (based on October 2022 WEO and World Bank 2021 CPIA). - Score thresholds: below 2.69 = "low"; above 3.05 = "high." - DSA uses six standardized stress tests plus: - A tailored commodity price shock. - A customized scenario using residency-based definition of external debt (details below). - A customized scenario with stock-flow adjustments for below-the-line fiscal operations. - A historical scenario (10-year historical averages) as a robustness check. - Customized residency-based external debt scenario: - Baseline DSA treats government securities issued in WAEMU regional market as domestic debt (currency-based definition). - Auction data indicate around two thirds of Mali government securities are bid by residents of other WAEMU members. - Assuming absence of secondary market trading, 2022 present value of CFAF-denominated government debt held by nonresidents expected to be around 35 percent of GDP, while PV of foreign-currency denominated debt accounts for around 15 percent of GDP. - Customized scenario constructed where two thirds of government securities are classified as external debt (residency-based definition). *Source: Malian authorities, IMF Staff Calculations.* ### 11. The customized scenario for public debt sustainability analysis takes into account ### 1mliea2023001 - 11. The customized scenario for public debt sustainability analysis takes into account ### Stock-flow adjustments (SFA) and customized scenario design - The customized scenario for public debt sustainability analysis takes into account “stock-flow adjustments”, where below-the-line operations contribute to debt increases. - Causes of SFAs listed: - extra-budgetary funds - differences in accounting methods between the fiscal balance and public debt - valuation effects - government guarantees - materialization of contingent liabilities - Historical averages cited: - SFAs have averaged 1.5 percent of GDP across the currency union. - SFAs averaged about 0.7 percent of GDP in Mali. - A more updated data vintage used elsewhere suggests a higher number for Mali (0.9 percent), implying the Report’s SFA results likely serve as a lower bound. - Staff approximation in the customized scenario: - assume the true overall deficits are 0.7 percent of GDP higher every year over the forecasting horizon. ### A. External Debt Sustainability — key findings and projections - Under the baseline scenario: - PPG external debt-to-GDP ratio is expected to fall slightly in 2022 relative to the previous year and then follow a downward trajectory to settle at 20 percent of GDP at the end of the projection period in 2042. - PV of external debt-to-GDP ratio projected to decrease slowly from 16.7 percent to 14.5 percent in 2032. - Indicative threshold for PV of external debt-to-GDP: 40 percent. - PV of external debt-to-exports remains comfortably below the 180 percent threshold. - Under standardized stress tests: - All external debt indicators remain below their corresponding indicative thresholds. - Under the customized scenario using a residency-based definition of external debt: - Debt service-to-exports ratio and debt service-to-revenue ratio exceed their corresponding thresholds for a prolonged period from 2024 to 2032. - Present-value-of-debt-to-exports indicator breaches the threshold during the last year of the projection period. - Higher interest rates on government securities amplify impacts on debt service indicators. - Staff judgment: - Currency-based definition of external debt suggests substantial space to absorb shocks. - Considering large share of government securities held by nonresidents, staff judge actual space to absorb shocks to be limited. ### B. Public Debt Sustainability — key findings and projections - Baseline public debt dynamics: - Public debt-to-GDP ratio projected to rise to around 60 percent over the medium term and to almost 60 percent of GDP by 2032. - Expected fiscal consolidation means the deficit is expected to gradually decrease to below the WAEMU ceiling of 3 percent of GDP. - Borrowing costs expected to increase as global financial conditions tighten. - Drivers of higher public debt in 2022 relative to 2021 DSA: - late registration of 2020 debt in 2021 - accumulation of deposits at the regional central bank in 2021 following a large disbursement of a World Bank loan at end-2022 - large US dollar appreciation vis-à-vis the euro during 2022 - External debt-to-GDP ratio expected to decline over the medium term due to relative scarcity of external concessional loans; assumption sensitive to global economic conditions and investor confidence. - Risk assessments and scenario outcomes: - Under the baseline scenario, PV of the public debt-to-GDP ratio expected to be below the 55 percent indicative threshold throughout the projection period. - Under the default adverse scenario of a commodity price shock, PV of the public debt-to-GDP ratio would diverge and breach the 55 percent threshold in 2025. - In the historical scenario (macro variables replaced by their 10-year historical averages), PV of the public debt-to-GDP ratio would breach the 55 percent threshold in 2031. - In the customized scenario of stock-flow-adjustments, the public debt-to-GDP ratio is set on an upward trajectory and breaches the 55 percent threshold by 2032. - Even SFAs less than the historical 0.70 percentage points of GDP are likely to set public debt on an unsustainable path given the baseline upward trajectory. ### C. Risk rating and vulnerabilities — diagnosis - Overall risk classification: - Mali’s risk of external and overall debt distress remains “moderate.” - Rationale: - Four external debt indicators remain comfortably below thresholds under baseline and standardized stress tests, but three indicators breach thresholds under the residency-based customized scenario. - Staff estimate that the risk of external debt distress is likely higher after accounting for government securities held by nonresidents. - In adverse commodity price, historical, and permanent SFA customized scenarios, the PV of the public debt-to-GDP ratio diverges and breaches the 55 percent threshold in 2031 and 2032. - Financing and political vulnerabilities: - Isolation from traditional donors and forced recourse to domestic markets increases financing risks. - Postponement of the constitutional referendum in March 2023 increases political uncertainty regarding elections in 2024 and potential reintroduction of sanctions. - Tighter financial conditions in the regional securities market have curtailed Mali’s access to finance. - Under the most extreme scenario for overall public debt: - PV of public debt-to-revenue and debt service-to-revenue ratios rise to high levels. - Debt service-to-revenue ratio rises above 100 percent by 2031, implying insufficient revenues to cover recurrent expenditures. ### Policy implications and recommendations - Restore fiscal discipline to rebuild investor confidence and attract financing. - Resolve security and political issues to reduce financing and political risks. - Pursue prudent cashflow management and management of existing arrears. - Engage with creditors to ensure clear communication and timely payments. *Source: 1mliea2023001 - 11. The customized scenario for public debt sustainability analysis takes into account* ### 18. The authorities agreed with the general conclusions of the debt sustainability analysis. ### 18. The authorities agreed with the general conclusions of the debt sustainability analysis. ### Authorities' assessment and commitments - Agreed with the general conclusions of the debt sustainability analysis. - Underscored commitment to maintaining a sustainable level of debt that does not exceed a moderate risk of debt distress. - Acknowledged that the debt stock had remained at a sustainable level, while noting liquidity issues could pose a risk. ### Risks to debt sustainability - Identified liquidity risk amid a "significant tightening of financing conditions in the regional securities markets." - Noted existing arrears management as a material concern being actively engaged with creditors. ### Debt management strategies under consideration - Engaging with creditors to carefully manage existing arrears. - Considering strategies and financial instruments to manage the debt, including: - adjusting maturity profile; - issuance volumes; - alternative markets; - reducing debt concentration in certain sectors and creditors. ### DSA scenarios, stress tests, and key indicators (selected) - Customized scenario is based on residency-based definition of external debt. - All additional financing needs generated by the shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA. - Default terms of marginal debt are based on baseline 10-year projections. - Note on stress tests: "The most extreme stress test is the test that yields the highest ratio in or before 2032. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals." Selected numeric indicators and projections (as presented): - PV of PPG external debt-to-GDP ratio (examples from tables/projections): 16.3; 16.7; 15.4; 14.5; 14.3; 14.2; 14.5; 14.5; 13.7. - PV of PPG external debt-to-exports ratio (examples): 59.9; 58.4; 53.0; 52.2; 49.7; 51.0; 54.2; 69.4; 95.3. - PPG debt service-to-exports ratio (examples): 4.8; 6.3; 3.9; 4.4; 4.3; 4.6; 4.7; 5.1; 5.0; 4.1; 7.2. - PPG debt service-to-revenue ratio (examples): 6.3; 9.5; 5.1; 6.5; 6.3; 6.4; 6.7; 6.9; 6.5; 4.0; 4.2. - Gross external financing need (Million of U.S. dollars) (examples): 589.1; 105.8; 1,071.7; 1,021.1; 833.9; 787.7; 358.0; 466.5; 577.2; 2,260.1; 8,325.3. - Real GDP growth (in percent) (examples across years): 4.8; -1.2; 3.1; 3.7; 5.0; 5.1; 5.3; 5.1; 5.0; 5.0; 5.0; 3.7; 4.9. - Government revenues (excluding grants, in percent of GDP) (examples): 19.6; 19.3; 20.8; 19.4; 19.9; 20.0; 20.2; 20.4; 20.7; 21.9; 24.8; 16.9; 20.7. - Aid flows (in Million of US dollars) (examples): 326.5; 212.1; 133.2; 134.3; 221.9; 317.9; 608.9; 666.1; 738.0; 954.6; 1,615.2. - Grant element of new public sector borrowing (in percent) (examples): 37.4; 57.7; 56.0; 47.5; 46.9; 42.9; 36.5; 33.1; 44.2. - Public sector debt (in percent of GDP) (selected historical/projections from public DSA): 40.7; 46.9; 50.4; 52.5; 53.8; 54.6; 55.1; 55.2; 55.5; 58.8; 69.2; 35.7; 55.8. - PV of public debt-to-GDP ratio (examples): 38.3; 41.1; 43.1; 44.3; 44.8; 44.8; 44.9; 49.4; 62.9. - Debt service-to-revenue and grants ratio (examples): 23.8; 31.1; 25.2; 32.8; 48.1; 49.0; 57.2; 60.2; 61.7; 62.5; 73.5. - Gross financing need (percent of GDP) (examples): 5.7; 10.5; 8.9; 9.7; 13.2; 13.0; 14.5; 14.7; 15.2; 16.1; 20.9. ### Stress test outcomes and sensitivity (selected) - Table summaries indicate breaches highlighted where bold values occur; examples of scenario outputs include: - PV of debt-to-GDP ratio baseline values (examples): 16; 17; 15; 14; 14; 15; 14; 14; 14; 14; 15. - Debt service-to-exports and debt service-to-revenue ratios under multiple bound and tailored tests show substantial variation, with some scenarios reaching or exceeding thresholds (thresholds stated, e.g., 40 for certain external indicators, 180 for other metrics, and 15/18 for PV and revenue benchmarks depending on the indicator). - Sensitivity analyses presented for 2022–2032 for both external and public debt show alternative scenarios (historical averages, customized residency-based definition, bound tests B1–B6, tailored tests C1–C4) with resulting series of indicator values across projection years; select series examples: - PV of debt-to-GDP ratio (projections 1/): Baseline 44; 55; 55; 55; 44. - PV of debt-to-exports ratio (projections 1/): Baseline 66; 67; 76; 65; 54; 44. *Source: IMF staff and Malian authorities, as presented in the DSA materials and related figures and tables in the chapter.* ### 2021. Sanctions were lifted in the second half of 2022 as the authorities engaged in a process ### 1mliea2023001 - 2021. Sanctions were lifted in the second half of 2022 as the authorities engaged in a process of return to civilian rule and restoration of the suspended constitution. In the interim, the ECF program expired in August 2022 and the authorities have since sought to re-engage with the Fund in the framework of a new UCT program or food shock window in view of the severe food insecurity facing the country. ### Recent Economic Development and Outlook - Macroeconomic resilience despite multiple shocks: terrorist attacks, the pandemic, regional sanctions, the repercussions of the war in Ukraine, and climate change. - Real GDP growth: - Averaged nearly 4 percent in the last three years. - Reached 3.7 percent in 2022 driven by higher gold production and adjustment to regional sanctions. - Growth is expected to pick up and exceed 5 percent in 2023-24 on account of increased gold and agricultural production. - Inflation: - Average inflation reached 10 percent in 2022 fueled by soaring global food and fuel prices. - Inflation should decline to 5 percent in 2023 and fall below 3 percent in 2024 with the attenuation of supply side shocks. - External sector and current account: - Current account deficit increased from 2.2 percent of GDP in 2020 to 7.5 percent (year implied: 2022) mostly due to higher prices for energy and food imports. - The current account deficit should improve over the medium term (staff and authorities broadly agree on improvement, though authorities’ medium-term gold price projections are more conservative than staff’s). - Public debt and fiscal stance: - Public debt increased from 50.4 percent of GDP in 2021 to 52.5 percent of GDP in 2022, reflecting Euro depreciation and on-lending of the 2021 SDR allocation by BCEAO. - Fiscal deficit is expected to narrow to 4.3 percent of GDP in 2024 and reach the regional deficit norm of 3 percent by 2025-2026. - The risk of debt distress remains moderate over the medium term. - Food insecurity and social conditions: - It is estimated that 15 percent of the population faced severe food insecurity in 2022. - Authorities request access to the IMF Food Shock Window (FSW) to address urgent food insecurity and associated humanitarian risks. - Political and financing context: - Sanctions were lifted in the second half of 2022 as authorities engaged in return to civilian rule and restoration of the suspended constitution. - The ECF program expired in August 2022; authorities have sought re-engagement via a new UCT program or FSW. - Authorities highlight successful return to the bond market after lifting of sanctions as a sign of investor confidence, and aim to expand investor participation in sovereign debt market. - Preconditions and risks: - Positive outlook hinges significantly on continued improvement of the security situation and resumption of external financial support, including from the IMF. - Authorities note liquidity risks to debt sustainability if financing conditions tighten in regional securities markets. ### Fiscal Policy and Reforms - Fiscal objectives and priorities: - Fiscal policy objective is to bring the deficit below the regional norm of 3 percent of GDP by 2025-2026. - Authorities committed to deficit reduction efforts initiated since 2020. - Reforms to improve domestic revenue collection and quality of spending will be stepped up. - Revenue mobilization and tax administration: - Need for stronger efforts to broaden the tax base, streamline procedures, and enhance efficiency in tax and customs administration. - Measures to be pursued (initiated under previous ECF-supported program): - Design and introduction of a new property tax on developed and undeveloped land. - Generalization of the use of online procedures for tax filing and payment. - Determined actions to enhance tax noncompliance controls and crosschecking with customs, the Treasury and other agencies. - With Fund TA, add more taxpayers from the informal sector, notably via payment of certain taxes through mobile banking services. - Expenditure efficiency and wage bill: - Authorities recognize elevated budget cost of the wage bill; consultations organized to address wage increase demands in the public sector in an orderly medium-term perspective to avoid ad-hoc measures. - Expected growth uptake should increase revenues and reduce the ratio of the wage bill to tax revenue over the medium term. - Continued improvements planned in cash management, budget execution controls, and avoidance of arrears. - Security-related fiscal pressures: - Insecurity over a decade estimated to have caused a revenue loss of 4 percent of GDP in 2022. - Significant expenditures to restore security crowd out development and social spending, especially in most afflicted regions. - Return and care of displaced Malians and refugees involve significant fiscal costs. - Debt management and prudence: - Authorities emphasize a prudent debt policy, preferring grants or highly concessional financing when possible. - Engaged in creditor dialogue to ensure orderly management of existing arrears. - Plan to update debt management strategies and financial instruments, and reduce concentration of debt in certain sectors and with certain creditors. ### Social Protection, Food Security, and Climate - Food security strategy: - Strategy combines a long-term component addressing structural hunger and a cyclical component for decisive emergency interventions. - Authorities emphasize subsidies and transfers as impactful and inclusive measures to protect the most vulnerable. - Reiteration of request for IMF Food Shock Window (FSW) operationalization to assist in breaking the vicious circle linking insecurity, displacement, and recruitment by terrorists. - Poverty and social outcomes: - Authorities determined to reduce poverty and food insecurity in line with 2019-2023 CRDD strategic framework. - Climate agenda: - Climate change and weather-related challenges (increasing temperatures and drought episodes) are priorities due to adverse impacts on food security and vulnerable populations. - Authorities will seek IMF technical assistance on green public financial management and climate public investment management. ### Structural Reforms and Governance - Business climate and governance reforms: - Continued efforts to improve governance and the business climate to foster private sector-led and inclusive growth. - Key reform priorities: - Increase access to financial services. - Secure reliable electricity supply. - Ensure well-functioning judicial system. - Step up the fight against corruption. - Rationalize procedures in public administration. - Energy sector: - Focus on restructuring the electricity company (EDM-SA) and achieving cost recovery. - Aim for the company to meet financial obligations, provide affordable and reliable electricity, stabilize finances, and eliminate government subsidies in the medium term. - Anti-corruption and transparency: - Actions to support anti-corruption agencies like le Bureau de Vérificateur Général du Mali. - Fight against illicit enrichment; publication of beneficial ownership of companies awarded government contracts during the pandemic. - Steps to address downward trend in asset declarations since 2018 and workshops to validate list of public officials subject to declarations. - Gender and inclusion: - Commitment to achieve gender equality and female empowerment via Politique Nationale du Genre (PNG-Mali). - Focus on strengthening women’s economic capacity through access to education, integration into productive activities, and guaranteeing equal access to employment opportunities and production factors, including affordable financing. ### Conclusion and Policy Requests - Summary assessment: - Malian economy has shown resilience but weakened by security and climate challenges, the Covid-9 pandemic, and spillovers from the war in Ukraine. - Authorities committed to preserving macroeconomic stability and pursuing strong and inclusive growth. - Urgent needs: - Confluence of shocks from climate change and food insecurity has created urgent balance of payments needs to avoid a full-blown food and humanitarian crisis. - Authorities look forward to Fund support, including operationalization of the Food Shock Window, to respond to the emergency situation. *Source: 1mliea2023001 - 2021. Sanctions were lifted in the second half of 2022 as the authorities engaged in a process of return to civilian rule and restoration of the suspended constitution.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1mliea2023001.pdf_