## _cr0743 ## Source details **Canonical URL:** [_cr0743](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0743.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0743.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0743.pdf.json) --- ### Executive Summary — SMP performance and near-term outlook - SMP implementation (January–June 2006) was fully satisfactory: all quantitative targets and structural indicators under the SMP were met. - Key macroeconomic outcomes and policy variables: - Annualized inflation kept below 10 percent during the first half of 2006. - Broad money grew by 7.3 percent over the first half of 2006. - Credit to the economy through end-June expanded by 1 percent. - Treasury bill interest rates maintained at 12–13 percent; central bank discount rate at 14 percent. - Premium on the parallel foreign exchange market remained nil. - Fiscal and external developments (remainder of 2006): - Real GDP expected to post double-digit growth in 2006 (about 14 percent). - Oil production declined from close to 75,000 bpd in March to about 30,000 bpd in the third quarter and expected to remain at that level at least through the remainder of 2006. - Broad money growth contained below 8 percent over the first nine months of 2006. - BCM foreign exchange reserves climbed to $111 million at end-September, equal to about 1.4 months of imports. - Sale of a third mobile telecom license brought proceeds of $103 million. - New fishing agreement with the EU will yield annual revenue of €108 million over six years (€86 million disbursed from the EU budget and €22 million directly by EU fishing companies). - Program request and objectives: - Authorities request a three-year PRGF arrangement with access at SDR 16.1 million (25 percent of quota). - Program aims (October 2006–September 2009): consolidate stabilization, implement structural reforms for private-sector led growth and diversification, target real GDP growth above 4 percent, gradually reduce inflation to below 5 percent, and bring official reserves to about three months of imports. ### Fiscal policy, 2006–07 framework and Budget 2007 measures - Fiscal stance and targets: - Program targets a non-oil primary deficit of about 6 percent of non-oil GDP. - Revenue stabilized at about 23 percent of non-oil GDP. - Oil fund contribution to budget financing projected to decline from UM 49 billion in 2006 to UM 22 billion in 2009. - Fiscal year October 2006–September 2007: 2006 non-oil primary government deficit including grants would not exceed 6.3 percent of non-oil GDP (or 1.6 percent of non-oil GDP including proceeds from the sale of the telecom license). - 2007 target: non-oil primary deficit projected to decline slightly to 6.2 percent of non-oil GDP. - Budget 2007 tariff and tax policy (Box 1 / Budget 2007): - New external tariff schedule (four rates): 5 percent (raw material and capital goods); 13 percent (intermediate goods); 20 percent (consumption goods); 0 percent (essential goods). - Expected revenue from new tariff adoption: UM 3.5 billion in 2007. - Introduction of a 7.5 percent excise tax on sugar, expected to generate UM 2.5 billion in 2007. - Generalization of the statistical tax to all external trade flows and reduction of the rate to 1 percent (from 3 percent), implying a revenue loss of UM 2.5 billion in 2007. - Reduction of minimum presumptive tax on imports and public procurement contracts from 4 percent to 3.5 percent, expected to reduce IMF receipts by UM 1.5 billion in 2007. - Elimination of VAT exemptions on meats and dairy products, expected to generate UM 0.4 billion in 2007. - Net impact: measures expected to generate about UM 2.4 billion in net additional revenue (close to 0.4 percent of non-oil GDP). - Public expenditure composition and priorities: - Capital spending expected to be slightly above 10 percent of non-oil GDP from 2007. - Poverty-reducing current and capital expenditures projected to increase annually by an average of 16 percent in real terms in 2006–09. - Program expects to keep about $60 million in the FNRH over the program period, providing a one-year spending buffer against oil price declines of up to $15 per barrel. - Selected fiscal numeric highlights (2003–09 aggregates): - Capital expenditure (percent of non-oil GDP): 13.0; 10.9; 7.4; 9.4; 10.2; 10.2; 10.2 (years shown). - Non-oil revenue and grants (billions): 119.7; 130.4; 131.3; 163.7; 168.9; 175.6; 185.3 (2003–09 series). - Basic non-oil deficit objective end-2006: UM 25 billion (equivalent to 4.4 percent of non-oil GDP); 2007 basic non-oil deficit: UM 26 billion. ### Monetary policy, exchange rate, financial sector reforms - Monetary and liquidity management: - Broad money growth projected at 15.8 percent in 2006 and 17.3 percent in 2007. - Program foresees a monetary base increase of 17.3 percent in 2007, assuming no significant deepening of financial intermediation. - BCM to keep policy interest rates at a positive real level and actively control monetary expansion; stands ready to tighten intervention rates if inflationary pressures emerge. - Measures: weekly liquidity forecasts, launch of new liquidity instrument, BCM certificates of deposit, test open market operations on T-bills in 2007, securitization of a portion of government debt owed to the BCM. - Exchange rate and foreign exchange market: - Ouguiya de facto pegged to the U.S. dollar since October 2005; program exchange rate memorandum: UM/$ = 268.6. - Elimination of remaining foreign exchange rationing on October 27, 2006; launch of foreign exchange auctions by end-2006 and a new foreign exchange market to open by end-December 2006 (initially an auction system). - BCM interventions aimed to smooth day-to-day fluctuations. - Financial sector structural reforms (FSAP recommendations and measures): - Adoption of new laws on the central bank, commercial banks, and microfinance; cabinet adoption before end-2006. - External audits of banks’ financial statements and enhanced onsite inspections; adoption of tighter provisioning and higher minimum capital requirements (minimum capital to UM 1 billion by end-2006). - Modernization of payments system and launch of an interbank electronic payment card in early 2007. - Implementation of AML/CFT regulations and strict application of prudential norms. ### Structural reforms, governance, public financial management, and public enterprises - Transparency and oil revenue governance: - National Hydrocarbon Revenue Fund (FNRH) created and operating since June 2006; all government hydrocarbon revenues transferred to FNRH. - Draft law on optimal management of oil resources to be prepared Q1 2007 and submitted to parliament by end-August 2007. - EITI Committee established; FNRH audit and publication timetable: select international auditor by end-December 2006; transmit first annual audit report by end-March 2007. - Public financial management and procurement: - Computerization of all stages of budget execution and progressive deconcentration among line ministries; generalize use of the RACHAD application in 2007. - Adopt new procurement code by end-June 2007 to strengthen ex-ante controls. - Strengthen control institutions: publish IGE and IGF reports by end-June 2007 and the Audit Office report by end-October 2007. - Civil service and anti-corruption: - With World Bank assistance, prepare by September 2007 a plan to build a competent and efficient civil service while progressively eliminating overstaffing. - Adopt by end-2006 a code of ethics for civil servants and finalize anticorruption campaign strategy before end-June 2007. - Public enterprise reforms and administered prices: - Settlement of government arrears to public enterprises by end-2006. - Semiannual adjustments in tariffs of electricity and water to maintain balanced operational budgets for SOMELEC and SNDE; performance contracts with SOMELEC, SNDE, and SMH by end-June 2007. - Cap in 2007 on total subsidies to butane gas bottles and a subsidy budgeted no more than UM 1.5 billion to SOMAGAZ and other gas bottling companies in 2007. - Petroleum product prices adjusted every two months; objective to eliminate distribution companies’ revenue losses by end-August 2007. ### External sector outlook, financing, and debt sustainability - Program access and disbursement: - Proposed access: SDR 16.1 million (25 percent of quota) over three years. - Frontloading: disbursements in seven tranches amount to SDR 8.38 million in the first year; SDR 3.86 million in the second and third years. - Financing and projected gaps: - First program year: fully financed. - Projected remaining financing gap: $77 million over 2008–09 expected to be met by additional support. - Expected additional support includes two disbursements from the Arab Monetary Fund in 2006 and 2007 if program implementation proceeds. - Arrears and recent creditor contacts: - Outstanding arrears about $1.3 billion at end-2005, mostly to bilateral non-Paris Club creditors (Algeria, Iraq, Kuwait, Libya, UAE). - Arrears to Kuwait (close to $1 billion at end-2005) and to Libya ($68 million) were excluded from HIPC relief calculations at the decision point in 1998. - Staff informed that Chinese authorities have decided to forgive all claims in arrears on rescheduled debt to China ($23.6 million). - Last disbursement of $8 million made in early October 2006 under a short-term nonconcessional facility of $40 million from the Islamic Development Bank in 2006. - Debt sustainability assessment (DSA) conclusions and scenarios: - MDRI and HIPC relief markedly improved prospects; under the baseline assuming resolution with remaining bilateral creditors, Mauritania’s debt appears sustainable with moderate risk of distress. - DSA baseline assumes conservative oil profile: oil production assumed to decline over 2007–09 and reverse in 2010 with new fields; cumulative oil production under DSA profile: 280 million barrels. - Alternative low-oil scenario (operators do not develop two neighboring offshore fields) implies rapid unsustainability if non-oil deficit stays unchanged; restoration would require fiscal adjustment (about 4 percent of GDP on average for 2012–26 in that scenario). - Baseline targets official reserves at about three months of imports by end-2007 and stabilize thereafter. - Authorities intend to rule out borrowing on nonconcessional terms and to update DSA annually; negotiation with remaining non-Paris Club creditors required to consolidate external debt sustainability. ### Program conditionality, monitoring, and safeguards - Structural conditionality and prior actions: - Prior action: Government adoption of a 2007 budget ordinance conforming with MEFP paragraphs 26–29 (including customs tariff and indirect tax reform). - Performance criteria and benchmarks include elimination of partial surrender requirements on fish export proceeds (PC), adoption of ordinances on central bank and banking laws (PCs), launch of new liquidity instrument (SB), and publication of BCM audit of 2006 financial statements (SB). - Quantitative monitoring: - Quantitative performance criteria and benchmarks based on SMP specifications; fiscal monitoring based on non-oil primary balance excluding grants and foreign-financed spending. - Review schedule: semi-annual reviews; first and second reviews based on end-December 2006 and end-June 2007 quantitative criteria, respectively. - Reporting and data improvements: - BCM to provide monthly balance sheet and foreign reserves data within two weeks of month end; monthly monetary survey within three weeks; detailed monthly external and banking data, and quarterly balance of payments within one month of quarter end. - Ministry of Finance to provide monthly treasury data within two weeks and monthly oil sector production and financial flows within one month. - National Statistical Office to publish monthly CPI within two weeks. - Authorities have released detailed monthly oil production and revenue since July 2006. - Safeguards: - 2004 safeguards assessment to be updated; authorities committed to earlier safeguards recommendations and IFRS-based 2006 financial statements; staff to continue monitoring BCM safeguards framework. ### Program risks, mitigation, and staff appraisal - Main risks: - Lingering uncertainties about oil production prospects. - Scheduled political change in May 2007. - Vulnerability to exogenous shocks (export price fluctuations, rainfall/livestock hazards). - Mitigating factors: - Program design uses conservative fiscal and monetary settings and emphasizes non-oil revenue mobilization. - Accumulated FNRH reserves expected to be $60 million by end-2006 as buffer; program frontloads critical reforms to mitigate implementation risks. - Authorities ready to implement fiscal adjustment in 2008/2009 if declining oil production is not reversed. - Staff appraisal — summary findings: - Transition authorities have re-established sound macroeconomic policies and reform implementation. - Oil fund establishment and transparency measures (EITI, audits) are positive. - PRSP targets are ambitious given downward revisions in oil revenue projections; MEFP macro framework is realistic and scaled down accordingly. - Further public expenditure management and governance improvements are critical to ensure high social returns and effective poverty reduction spending. ### Millennium Development Goals — maternal health (excerpt) - MDG Goal 5 entry (table fragment): - Reduce the rate of maternal mortality: 747.0......400.0300.0... - Contextual MDG indicators and demographic items (table fragments preserved verbatim): - Goal 5 reference text exactly as in source: "Goal 5. Reduce by three quarters, between 1990 and 2015, the under-five mortality rate." - Related health indicator fragment preserved verbatim: "Reduce b y half the incidence of HIV/AIDS......0.50.60.5<1.1<1.01.0" - Access indicators fragments: "Access to improved water source......60.4...63.765.075.0..." and "Access to electricit y......18.0...23.8........." - Population (in millions) fragment: "Population (in millions) 1/1.962.272.512.632.82........." - UNDP HDI fragment: "UNDP Human Development Index0.3870.4230.4490.465............" - Gini index fragment: "Gini index of inequalit y...0.340.39...0.390.400.41..." - Child vaccination rate fragment: "Child vaccination rate (in percent)...30407093........." *Source: Executive Summary and excerpts from IMF country report content unit _cr0743 (IMF staff report, MEFP, TMU, DSA, and related tables).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Performance under the Staff-Monitored Program (SMP) - Implementation of the SMP (January–June 2006) was fully satisfactory: all quantitative targets and structural indicators under the SMP were met. - Key macroeconomic outcomes and policy variables: - Annualized inflation kept below 10 percent during the first half of 2006. - Broad money grew by 7.3 percent over the first half of 2006. - Credit to the economy through end-June expanded by 1 percent. - Treasury bill interest rates maintained at 12–13 percent; central bank discount rate at 14 percent. - Premium on the parallel foreign exchange market remained nil. - Fiscal performance: - Tax revenues over the first half were about 13 percent higher than program projections. - Faster-than-programmed reduction of domestic spending arrears. - External position: - Official reserves remained low until late June 2006 and began to strengthen after treasury received payments for a new telecom license in July 2006. ### Recent developments and near-term prospects (remainder of 2006) - Growth and production: - Real GDP expected to post double-digit growth in 2006 (about 14 percent). - Oil production declined from a level close to 75,000 barrels per day (bpd) in March to about 30,000 bpd in the third quarter and is expected to remain at that level at least through the remainder of 2006. - Inflation and monetary stance: - Year-on-year inflation expected to remain at single-digit levels through tight monetary policy. - Broad money growth contained below 8 percent over the first nine months of 2006. - Policy stance and lower world oil prices expected to contain CPI increase to less than 10 percent at year-end. - Fiscal and external improvements from one-off and negotiated receipts: - New fishing agreement with the EU will yield annual revenue of €108 million over six years. - Of this annual amount, €86 million will be disbursed from the EU budget and €22 million directly by the EU fishing companies. - Sale of a third mobile telecom license brought proceeds of $103 million (about six times the initially budgeted amount). - Supplementary Budget Ordinance (SBO) adopted July 2006: - Increased spending equivalent to 2 percent of non-oil GDP. - Equivalent of 1.2 percent of non-oil GDP allocated to investment spending; remainder to cover electoral cost overruns and higher-than-expected quasi-fiscal losses from two public utilities. - Transfers from the National Hydrocarbon Revenue Fund (FNRH) maintained at UM 49.1 billion. - Reserves and exchange rate: - BCM foreign exchange reserves climbed to $111 million at end-September, equal to about 1.4 months of imports. - The ouguiya has been de facto pegged to the U.S. dollar since October 2005; nominal exchange rate kept stable vis-à-vis the U.S. dollar. ### Program request, objectives, and medium-term macroeconomic framework - IMF support requested: - Authorities request a three-year PRGF arrangement with access at SDR 16.1 million, or 25 percent of quota. - Overall program aims (October 2006–September 2009): - Consolidate SMP progress toward macroeconomic stabilization. - Implement far-reaching structural reforms to foster private-sector led growth, diversification, and poverty reduction. - Target real GDP growth of above 4 percent over the next three years. - Gradually reduce inflation to below 5 percent. - Bring official reserves to about three months of imports. - Growth and external assumptions: - Program assumes lower growth than the PRSP due to drastic downward revisions in oil production and oil government revenue projections. - Medium-term real GDP growth projected slightly above 4 percent on average over 2007–09 (about 3½ percentage points less than PRSP assumptions). - Medium-term oil production outlook revised substantially downward; oil production assumed to decline continuously over 2007–09 and to reverse in 2010 with new fields. - Non-oil GDP projected to grow by some 6 percent on average over the medium term. - Excluding extractive industries, activity expected to grow at an average rate of 4.8 percent in 2007–09. - Official reserves targeted to reach about three months of imports by 2007 and stabilize at this level through the program. ### Fiscal policy, revenue strategy, and public expenditure - Fiscal targets and composition: - Program targets a non-oil primary deficit of about 6 percent of non-oil GDP. - Revenue stabilized at about 23 percent of non-oil GDP. - Oil fund contribution to budget financing projected to decline from UM 49 billion in 2006 to UM 22 billion in 2009. - Revenue measures and tax policy: - Revenue efforts aim at broadening the tax base (including gradual elimination of VAT exemptions) and improving tax collection via tax administration reforms. - Reform of presumptive taxes on imports and public procurements expected to have short-term negative impact; offset by tax administration improvements and buoyant tax revenues. - Public expenditure and poverty reduction: - First program year includes tariff and tax policy reforms and a reduction in subsidies to public enterprises, intended to slightly decrease the non-oil primary deficit while substantially increasing capital spending and poverty-reducing expenditures. - Public sector reforms to strengthen legislative framework for oil revenue management and improve monitoring and control of budget execution. - Steps toward civil service reform and strengthened governance will be prepared. ### Monetary, foreign exchange, and financial sector reforms - Monetary policy and exchange rate: - Central bank to actively control monetary expansion in view of a move to a more flexible exchange rate policy. - Planned move toward more active liquidity management and development of a measure of core inflation. - Financial sector reforms: - Program includes adoption of new laws on the central bank and commercial banks in line with the 2006 FSAP recommendations. - Launching of a new foreign exchange market and further liberalization of foreign exchange operations. - Structural reforms: - Ambitious reforms envisaged in the public and financial sectors to foster private-sector led growth and diversification. ### Program risks and mitigation - Main risks: - Lingering uncertainties about oil production prospects. - Scheduled political change in May 2007. - Mitigating factors: - Program design mitigates risks in part through conservative fiscal and monetary settings and reliance on non-oil revenue mobilization. - However, additional fiscal adjustment may be needed in 2008/2009 if the declining trend in oil production is not reversed. *Source: Executive Summary, IMF country report content unit _cr0743 - Executive Summary.* ### 16. The program foresees less ambitious spending plans than the ones included in ### The program foresees less ambitious spending plans than the ones included in ### Spending plans and fiscal framework - Program aims to preserve the objective of increasing investment and poverty reduction expenditures while adopting less ambitious overall spending plans than in the PRSP and the Medium-Term Budget Framework. - Authorities will aim to gradually reduce current spending as a percent of non-oil GDP through: - civil service streamlining (MEFP, paragraph 36); - savings from strengthened procurement and spending control measures (MEFP, paragraph 37); - sizeable reduction in subsidies to key public enterprises via tariff adjustments and improved performance monitoring (MEFP, paragraph 40). - Capital spending: - expected to be slightly above 10 percent of non-oil GDP from 2007. - Poverty-reducing expenditures: - Using in part the MDRI savings, poverty reducing current and capital expenditures are projected to increase annually by an average of 16 percent in real terms in 2006–09. - Fiscal buffer: - The program expects to keep about $60 million (the projected end-2006 level) in the FNRH over the program period, providing a one-year spending buffer against oil price declines of up to $15 per barrel. ### Fiscal year October 2006–September 2007: fiscal policy and targets - 2006 target: keep the deficit within the SBO projections. - 2006 non-oil primary government deficit including grants would not exceed 6.3 percent of non-oil GDP (or 1.6 percent of non-oil GDP including the proceeds from the sale of the telecom license). - 2007 target: non-oil primary deficit projected to decline slightly to 6.2 percent of non-oil GDP despite a significant drop in tax revenue. - To achieve the 2007 deficit target, authorities will: - tighten recurrent nonwage expenditure; - initiate far-reaching tariff and indirect taxation policy reforms; - reduce subsidies and transfers (including via utility tariff increases); - reduce in real terms expenditures on goods and services; - channel some investment disbursements to the following year due to expected normal delays. - Capital expenditure: increase from 9.4 percent of non-oil GDP in 2006 to 10.2 percent in 2007, with additional expenditure directed mostly toward poverty reduction. ### Budget 2007: tariff and tax policy reforms (Box 1) - New external tariff schedule: a simplified four-rate schedule inspired by WAEMU: - 5 percent for raw material and capital goods; - 13 percent for intermediate goods; - 20 percent for consumption goods; - 0 percent restricted to imports of essential goods (e.g., medicines). - Short list of exceptions (including rice, sugar, some textiles, tobacco, and some milk products) to be gradually eliminated over the program period. - Expected revenue from new tariff adoption: UM 3.5 billion in 2007. - Excise and statistical taxes: - Introduction of a 7.5 percent excise tax on sugar, expected to generate UM 2.5 billion in 2007. - Generalization of the statistical tax to all external trade flows (apart from oil and mining exports) and reduction of the rate to 1 percent (from 3 percent), implying a revenue loss of UM 2.5 billion in 2007. - Minimum presumptive tax on imports and public procurement contracts (IMF): reduction from 4 percent to 3.5 percent, expected to reduce IMF receipts by UM 1.5 billion in 2007. - Elimination of VAT exemptions for a number of goods (meats and dairy products), expected to generate UM 0.4 billion in 2007. - Net impact: measures expected to generate about UM 2.4 billion in net additional revenue, close to 0.4 percent of non-oil GDP. ### Structural reforms, governance, and public financial management - Structural agenda frontloaded with emphasis on public sector and financial sector reforms; transparency and good governance are cross-cutting themes. - Key measures and deadlines: - Adoption of the law on oil revenue management and publication of audited reports of the FNRH (together with EITI commitments) to foster transparency in oil-related matters (MEFP, paragraph 32). - Oil revenue management law to be submitted for parliamentary approval by end-August 2007. - Computerization of all stages of the budget execution process and progressive deconcentration among line ministries. - Strengthening of budget execution oversight by the Audit Office, the State General Inspectorate (IGE), and the Finance General Inspectorate. - Application of the new procurement code to strengthen ex-ante controls of public expenditure. - Civil service and anti-corruption: - With World Bank assistance, prepare by September 2007 a plan to build a competent and efficient civil service while progressively eliminating overstaffing (MEFP, paragraph 36). - Measures to fight corruption (including promulgation of a code of ethics for civil servants) incorporated in the first program year (MEFP, paragraphs 38–40). - World Bank assistance requested in drafting an anti-corruption law before the end of the transition period. ### Public enterprise reforms - Objective: elimination and prevention of further losses by public enterprises. - Measures: - Settlement of government arrears to public enterprises by end-2006. - Semiannual adjustments in tariffs of electricity and water to maintain a balanced operational budget for SOMELEC and SNDE. - Enhanced management monitoring of SOMELEC, SNDE, and SMH (national hydrocarbon company). - Additional actions needed in 2007 to avoid new quasi-fiscal losses: less costly subsidization scheme for gas bottles, sale or liquidation of Air Mauritania, and clarification of SONIMEX mandate. - Program establishes a cap in 2007 on the total amount of subsidies to butane gas bottles and steps toward better targeting of these subsidies on social and environmental grounds (MEFP, paragraph 40). ### Monetary policy, exchange rate, and financial sector reforms - Monetary program assumptions and targets: - Broad money demand assumed to grow in line with non-oil GDP in 2007. - Program foresees a monetary base increase of 17.3 percent in 2007, assuming no significant deepening of financial intermediation. - Central bank stands ready to tighten monetary stance, including through changes in intervention rates, if inflationary pressures emerge (MEFP, paragraph 21). - Measures to improve banks’ liquidity management: weekly liquidity forecasts, launching of a new instrument, restructuring and securitization of a portion of government debt owed to the central bank (MEFP, paragraph 22). - Exchange rate policy: - Launch of foreign exchange auctions by end-2006 to move to a more flexible exchange rate policy. - Elimination of remaining foreign exchange rationing on October 27, 2006; phasing out of surrender requirements for fish export proceeds before launching new foreign exchange market. - BCM will conduct foreign exchange auctions with a view to limiting interventions to smoothing day-to-day fluctuations. - Financial sector legislative and supervisory reforms (Box 2): - Cabinet adoption of new ordinances on banking, the central bank, and microfinance before end-2006. - External audits of banks’ financial statements and enhanced onsite inspections (MEFP, paragraph 39). - Adoption of tighter provisioning and higher minimum capital requirements to encourage bank mergers and facilitate foreign bank entry. - Modernization of payments system and launch of an interbank electronic payment card in early 2007. - Measures to introduce BCM certificates of deposit, develop interbank and secondary markets, and launch the foreign exchange market. - Implementation of AML/CFT regulations and strict application of prudential norms. ### External sector outlook and debt sustainability - External position: - Strengthen moderately over the program period (Table 8). - Short-term benefits from strength of iron ore exports and beginning of operations at Akjoujt (copper and gold) and Taziast (gold). - From 2008, projected decline in world prices of these commodities will reduce their positive contribution to the balance of payments. - Official reserves projected to reach about three months of import cover at end-2007 and remain at that level subsequently. - Debt sustainability: - Prospects improved markedly due to MDRI debt relief and strong projected growth but remain clouded by unresolved bilateral arrears with Kuwait and Libya. - DSA includes a low-case scenario assuming Woodside would not develop two other offshore fields; under that scenario, if the non-oil deficit stays the same, Mauritania’s debt will become rapidly unsustainable. - Authorities stand ready to implement fiscal adjustment if needed (MEFP, paragraph 47). - Even assuming relief along lines of recent Paris Club agreement, Mauritania would remain vulnerable to adverse shocks, notably slower-than-projected export growth. - Debt management strategy: - Work on a national debt strategy has begun with a detailed DSA prepared with support from Debt Relief International. - Authorities intend to rule out borrowing on nonconcessional terms (MEFP, paragraph 45). - Improvements planned in information sharing and cooperation on new loans between finance actors (ministry of finance and ministry of economic affairs and development). *Source: Excerpt from IMF program document (MEFP and accompanying staff report) describing fiscal, structural, monetary, public enterprise, and external sector policies and projections for Mauritania for the program period and fiscal year October 2006–September 2007.* ### 30. Proposed access amounts to SDR 16.1 million (25 percent of quota) over the ### Proposed access amounts to SDR 16.1 million (25 percent of quota) over the ### Program access and disbursement profile - Proposed access: SDR 16.1 million (25 percent of quota) over the three-year period covered by the new PRGF arrangement. - Rationale: Consistent with the expected average access for sixth-time users, and the substantial although uncertain balance of payments needs during the program period. - Frontloading: Disbursements in seven tranches will amount to SDR 8.38 million in the first year against SDR 3.86 million in the second and third years. - Justification for frontloading: Envisaged acceleration of reforms during the first program year — including the critical liberalization of the foreign exchange market and the tariff and financial sector reforms — requiring rapid accumulation of official reserves. - Timely Fund obligations: Mauritania is expected to be able to settle its obligations with the Fund on a timely basis (Table 10). ### Financing, donors, and projected gaps - First program year: Fully financed. - Expected additional support: Two disbursements of balance-of-payments support from the Arab Monetary Fund in 2006 and 2007 are expected if program implementation proceeds. - Multilateral assistance: Continued improvement in performance would increase multilateral donors’ aid allocations to Mauritania, including assistance from the World Bank and the African Development Bank. - Projected remaining financing gap: $77 million over 2008–09 is expected to be met by additional support (Table 11). - Recent financing and arrears context: - Mauritania’s outstanding arrears (about $1.3 billion at end-2005) are due mostly to bilateral non-Paris Club creditors (Algeria, Iraq, Kuwait, Libya, the United Arab Emirates (UAE)) that have not yet provided irrevocable HIPC relief. - Arrears to Kuwait (close to $1 billion at end-2005) and to Libya ($68 million) were excluded from HIPC relief calculations at the decision point in 1998. - Debts to Algeria ($93 million at end-2005), Iraq ($70 million), and the UAE ($12 million) were included in HIPC relief calculations at the decision point. - Organization of Arab Petroleum Exporting Countries ($7 million) loan excluded from HIPC relief calculations; no request of payment of debt service received since discussions. - Arrears on rescheduled debt to China ($23.6 million): staff informed that the Chinese authorities have decided to forgive all claims in arrears. - Last disbursement of $8 million made in early October 2006 under a short-term nonconcessional facility of $40 million from the Islamic Development Bank in 2006 to strengthen official reserves before launching the foreign exchange market. - Recent creditor contacts: Inconclusive meetings took place with Algeria in March 2006, Kuwait in April 2005, Libya in October 2006, and the UAE in April 2005. No recent contact with Iraqi authorities. ### Program conditionality, monitoring, and data issues - Quantitative framework: Quantitative performance criteria and benchmarks based on specifications adopted in the SMP (IMF Country Report No 06/255). - Fiscal monitoring: Based on the non-oil primary balance, excluding grants and foreign-financed spending. - Structural conditionality: Limited to measures critical for program objectives. - Prior action for Board consideration: Government adoption of a 2007 budget ordinance that conforms with the understandings reflected in the MEFP (paragraphs 26–29), including the customs tariff and indirect tax reform. - Review schedule: Performance monitored through semi-annual reviews; first and second reviews based on end-December 2006 and end-June 2007 quantitative performance criteria, respectively. Quantitative performance criteria for end-June 2007 and structural performance criteria applicable to the second review expected to be set at the time of the first review. - Statistical adequacy and improvements: - Mauritania’s statistical information is adequate for program monitoring, although weaknesses remain in national accounts and balance of payments data. - Accuracy improved dramatically with recent comprehensive data revisions and SMP steps to improve central bank and public finance statistics transparency and consistency. - Since July 2006, authorities have released detailed information on oil production and revenue on a monthly basis. - With Fund technical assistance, targets include more timely production of national accounts data and improved balance of payments and public sector statistics (MEFP, paragraph 41). - Credibility to be strengthened by publication of audit reports of central bank and FNRH financial statements. ### Structural conditionality (Box 3) - Structural performance criteria (PC) and structural benchmarks (SB) of critical importance: - Foreign exchange reform: Elimination of the partial surrender requirements on fish export proceeds (PC). - Banking and financial sector reforms: - Adoption of ordinances on banking law (PC) and the central bank law (PC). - Launching a new money market instrument (SB). - Timely publication of the audit of the 2006 BCM financial statements (SB). - Public enterprise reform: Semi-annual adjustments of water and electricity tariffs based on a balanced operational budget (SB). - Oil management: Submission to parliament of a draft law on the transparent and optimal management of oil resources (SB). - Fiscal transparency: Monthly reporting of the administrative budget execution (credit allocation, engagements, and payment orders), based on the computerization of spending procedures (SB). ### Safeguards and central bank governance - Safeguards update: 2004 safeguards assessment being updated in conjunction with anticipated PRGF arrangement. - Commitments: Authorities committed to implementing earlier safeguards recommendations, including preparation of the 2006 financial statements in accordance with International Financial Reporting Standards (IFRS). - Staff findings: Progress made in accounting and transparency; weaknesses remain in the BCM’s controls framework. - Monitoring: Staff will continue to monitor the BCM’s safeguards framework to ensure vulnerabilities, external audit findings, and IFRS implementation are adequately addressed. ### Staff appraisal — findings, policy implications, and risks - Progress and achievements: - Transition authorities successful in putting Mauritania back on track to reap benefits of recent oil discovery and MDRI debt relief. - Satisfactory implementation of the SMP during first half of 2006 established a good track record of sound macroeconomic policies and reform implementation. - Establishment of an offshore oil fund in line with best international practices to ensure optimal use of new oil resources. - Reforms have gained full support of the international community and formed the basis for MDRI debt relief from the Fund, the World Bank, and the African Development Bank. - PRSP and macro framework: - Authorities prepared a new strategy to generate substantial growth and enhance poverty reduction, though government oil revenue projections on which it was based have been revised downward. - PRSP builds on progress in transparency and good governance and includes critical reforms in foreign exchange, financial sector, and public finance management. - PRSP poverty reduction goals appear very ambitious given downward revisions in medium-term oil revenue prospects. - Macroeconomic framework in the MEFP constitutes a realistic basis; downward revision in government oil revenue prospects accommodated by scaling down current and capital spending while leaving room for priority investment and poverty-reducing expenditures, provided production starts at new oil fields as projected. - Oil revenue management: - Transparent management and optimal use of oil revenues critical to program success. - Oil fund established in 2006 enables clear tracking of oil production and revenues and laid foundations for sustainable use. - Program provides further institutional and legislative steps for consultation, decision, and monitoring process regarding oil revenue use and national oil company governance. - Framework intended to offer safeguards against Dutch disease and promote high non-oil growth, diversification, and employment. - Public expenditure management and governance: - Further improvements in public expenditure management critical to success of private-sector led growth projects and MDG progress. - Despite MDRI savings, resources remain limited, calling for strengthened budget prioritization and planning to ensure high social returns and appropriate regional distribution of public investment. - Programmed steps toward better public spending execution and control, civil service reform and anticorruption plans to be developed in first program year, and periodic adjustment of public utility rates to eliminate drains on public finances. - Monetary policy and exchange rate framework: - Staff welcomes move to more flexible exchange rate policy and liberalization of foreign exchange market, including elimination in October 2006 of remaining exchange restrictions. - New exchange rate policy will strengthen capacity to deal with external shocks. - Important that legislative overhaul to strengthen commercial banks’ management and supervision and enhance central bank autonomy proceeds as scheduled. - Central bank’s more active management of bank liquidity should facilitate monetary program targets; with a more flexible exchange rate, disinflation targets need to be anchored on central bank control of monetary aggregates. - External position and debt management: - Program provides for further consolidation of Mauritania’s external position, but lower oil revenue prospects imply continued reliance on aid, including balance of payments support. - Authorities’ prudent external debt management strategy: intention to resort only to concessional external financing and completion of negotiations with remaining non-Paris Club creditors required to consolidate external debt sustainability. - Staff view: Developments in the debt’s net present value should continue to be monitored closely. - Risks: - Main risks stem from uncertainties regarding oil revenues and possible delays in implementing the medium-term reform agenda. - Oil account buffer and foreign exchange market reforms help absorb short-term adverse external shocks, but sustainability considerations may require fiscal adjustment in 2008–09 if declining oil production cannot be reversed or if balance of payments support cannot be found to fill the projected financing gap for these two years. - Delays in program implementation would jeopardize ambitious growth and poverty reduction goals; absent stable macroeconomic framework, transparent and efficient public finance management, and improved market-based access to foreign exchange and financial services, substantial external resources would be of limited help for private sector development. - Mitigation: Frontloading several key reforms in these areas mitigates some risks. - Political transition and program design: - Program design responds to political transition challenge: until installation of new government in May 2007, first year focuses on actions with broad consensus (consolidation of macroeconomic stability, strengthening transparency and sound management of public resources, and financial sector reforms). - First program year will lay groundwork for more politically sensitive reforms in civil service and fight against corruption and facilitate new authorities’ decision making. *IMF staff report content as provided in the source document.* ### 45. In light of these considerations, the staff recommends approval of Mauritania’s ### In light of these considerations, the staff recommends approval of Mauritania’s request for a three-year PRGF arrangement. ### Price developments - Monthly change in CPI, January 2005–October 2006: chart shows monthly changes ranging between -3 and 3 (In percent). - CPI, December 2004–October 2006 (year-on-year growth rate, in percent): Overall, Food, Non-Food series plotted with values up to 25 (percent) on the chart. - Note: "Following discussions engaged by the new transition government, wholesale traders agreed to eliminate noncompetitive practices in the meat industry, resulting in a substantial decline in retail prices for meat in September 2005." ### Monetary developments and exchange rate indices - Cumulative change indicators (Dec-04 to Aug-06) shown for: treasury bills (in percent of end-2004 stock of broad money), private sector credit (in percent of end-2004 stock of broad money), broad money (in percent of end-2004 stock). - Interest rates (weighted Tbills rate in percentage), Average 12-month CPI (percentage change), Parallel market premium (e.o.p., in percent of the official exchange rate) plotted for Dec-03 to Sep-06 with values up to 30 (percent). - Real and Nominal Effective Exchange Rates, 1990=100 shown Jan-01 to Sep-06 with index range shown 40–70. - Sources: Mauritanian authorities; and Fund staff estimates. 1/ September 2006: staff estimates. ### Quantitative indicators for end-March and end-June 2006 (Table highlights) - Net international reserves of the BCM (floor); in $ million: original -164.2; revised -162.5; end-June targets/actuals include -17.0, -11.1, -3.7, 0.9, 45.8, 58.8. - Net domestic assets of the BCM (ceiling); in UM billion: original 107.4; revised 106.9; end-June entries include 7.2, 5.6, 2.1, 7.2, -4.9, -11.0. - Balance of government non-oil operations (floor); in UM billion: entries include -10.0, -10.0, -2.2, -15.4, -15.4, -12.4. - Treasury float (ceiling); in UM billion: entries include 10.1, 8.7, 0.0, 0.0, -6.6, 0.0, 0.0, -2.5. - Medium- and long-term nonconcessional borrowing contracted or guaranteed by the government (continuous ceiling); in $ million: 0.0 entries. - Payments arrears on the official external debt (continuous ceiling); in $ million: 0.0 entries. - Reference projections for the adjustors (in $ million): Net external assistance -0.8 (Projection) and -0.2 (Actual); -9.4 (Projection) and 36.7 (Actual); Disbursement of foreign currency loans and grants (budgetary aid; excluding HIPC and project grants) 4.1 (Projection) and 4.2 (Actual); Official external debt service (cash; including interest on foreign liabilities of the BCM) 4.9 (Projection) and 4.4 (Actual); 13.5 (Projection) and 13.7 (Actual); Impact of any additional debt relief obtained after December 31, 2005: 0.0 (Projection) and 0.0 (Actual) and 46.2 (Actual later entry); Transfers from the National Hydrocarbon Revenue Fund to the budget 4.8 (Projection) and 10.1 (Actual) and 58.5 (Projection) and 57.3 (Actual). - Memorandum item: UM/$ exchange rate (program) 268.6. - Sources: Mauritanian authorities; and Fund staff estimates. 1/ For definitions, see the Technical Memorandum of Understanding dated March 14, 2006. ### Structural indicators (January–June 2006) - Transmission of the monthly TOFE to IMF staff with a lag of one month, based on the treasury balance and reconciled with the BCM accounts on a monthly basis; cumulative data from the start of the year: End-March TOFE available (Done). - Transmission to Fund staff of the preliminary report on the analysis of the revised economic data for 1992–2004: End-April 2006 (Done). - Transmission to Fund staff of the final audit report on the BCM accounts for 2003 and 2004: End-May 2006 (Done). - Sources: Mauritanian authorities; and Fund staff estimates. 1/ Subsequent monthly reports will be submitted to Fund staff on a monthly basis. ### Selected economic and financial indicators, 2001–07 (key series, percentage changes unless indicated) - GDP at constant prices: 2001 2.9; 2002 1.1; 2003 5.6; 2004 5.2; 2005 5.4; 2006 13.9; 2007 6.3. - Non-oil GDP at constant prices: 2.9; 1.1; 5.6; 5.2; 5.4; 6.1; 7.3. - GDP deflator: 1/ 7.9; 7.8; 2.5; 11.5; 18.9; 31.4; 3.8. - Consumer price index (period average): 7.7; 5.4; 5.3; 10.4; 12.1; 6.4; 8.7. - Consumer price index (end of period): 4.1; 8.4; 2.9; 16.1; 5.8; 9.8; 7.0. - Exports of goods, f.o.b. (percentage change in U.S. dollars): 0.2; -6.6; -4.1; 38.1; 42.2; 137.4; 9.5. - Of which non-oil: 0.2; -6.6; -4.1; 38.1; 42.2; 24.9; 29.5. - Imports of goods, f.o.b. (percentage change in U.S. dollars): 2.4; -7.3; 25.7; 70.3; 54.7; -12.5; 2.6. - Official transfers (in percent of GDP): 6.9; 5.1; 6.9; 4.1; 5.4; 3.5; 2.5. - Current account balance (in percent of GDP): -11.7; 3.0; -13.6; -34.6; -46.9; -3.1; -2.3. - Overall balance (in percent of GDP): -7.6; -2.8; -9.9; -7.3; -3.9; 9.8; 1.6. - Gross official reserves (end of period, in millions of U.S. dollars): 40; 73; 239; 170; 174; 228. - In months of following year's imports of goods and services: 0.9; 1.4; 0.4; 0.5; 0.7; 2.3; 2.9. - Money and quasi-money (percent change): 34.3; 23.8; 25.5; 13.5; 14.6; 15.8; 17.3. - Revenue and grants (in percent of non-oil GDP): 24.7; 34.8; 35.4; 32.9; 26.4; 39.7; 30.8. - Expenditure and net lending (in percent of non-oil GDP): 35.0; 37.6; 47.2; 37.7; 33.5; 37.5; 33.2. - Overall balance including grants (in percent of non-oil GDP): -10.3; -2.9; -11.8; -4.8; -7.0; 2.2; -2.4. - Memorandum items: - Ouguiya/US$ exchange rate (end of period) 6/: 264.1; 268.7; 265.6; 256.2; 268.6; 268.6; ... - Exports, f.o.b. (in millions of U.S. dollars): 355; 332; 318; 440; 625; 1,484; 1,625. - Imports, f.o.b. (in millions of U.S. dollars): 415; 383; 468; 625; 778; 974; 1,007. - Nominal GDP (in billions of ouguiya): 287; 312; 338; 397; 497; 744; 821. - Nominal GDP (in millions of U.S. dollars): 1,122; 1,150; 1,285; 1,495; 1,871; 2,770; 3,057. - Population (in millions): 2.57; 2.63; 2.69; 2.76; 2.82; 2.89; 2.96. - GNP per capita (in U.S. dollars): 265; 359; 499; 566; 686; 913; 966. - Sources: Mauritanian authorities; and Fund staff estimates and projections. - Notes: 1/ The large increase in the GDP deflator in 2006 (and the relatively low increase in real GDP for this year) reflect the authorities' choice of 1998 as the base year for the calculation of national accounts at constant prices. Oil prices were at a low in 1998. 2/ Excluding oil exploration/production and other mining (copper, gold)-related activities. 3/ Excluding oil account. 4/ Excluding imports financed in FDI and aid. 5/ Including oil signature bonuses. 6/ In 2006: estimates through end-September. ### Central Government Operations, 2003–09 (selected fiscal aggregates, in billions of ouguiya and percent of non-oil GDP) - Non-oil revenue and grants (2003–09, billions): 119.7; 130.4; 131.3; 163.7; 168.9; 175.6; 185.3. - Non-oil revenue (2003–09): 103.9; 117.9; 121.0; 151.2; 156.1; 170.1; 179.9. - Tax revenue (2003–09): 44.9; 59.2; 76.0; 92.4; 91.0; 99.4; 107.7. - Nontax revenue (2003–09): 59.0; 58.7; 45.0; 58.9; 65.1; 70.7; 72.2. - Of which: EU fishing compensation: 25.1; 29.2; 27.4; 28.0; 28.7; 28.8; 28.9. - SNIM dividend entries: 8.1; 8.1; 8.7; 8.1; 7.8. - Total grants (2003–09): 15.7; 12.5; 10.3; 12.4; 12.8; 5.5; 5.4. - Of which: multilateral HIPC assistance: 9.3; 8.2; 7.6; 5.7; 3.3; 2.5; 2.4. - Expenditure and net lending (2003–09): 159.5; 149.6; 166.3; 216.3; 224.2; 233.9; 245.6. - Current expenditure (2003–09): 114.2; 106.3; 126.7; 158.4; 155.6; 160.4; 167.4. - Compensation of employees (2003–09): 30.8; 33.7; 38.9; 52.1; 60.2; 63.8; 66.7. - Goods and services (2003–09): 49.1; 51.8; 65.6; 64.8; 61.9; 63.1; 67.2. - Subsidies and transfers (2003–09): 23.4; 6.4; 5.0; 20.0; 15.2; 14.8; 15.8. - Interest (2003–09): 9.3; 11.9; 16.1; 16.2; 13.3; 13.7; 12.7. - Capital expenditure (2003–09): 44.0; 43.0; 36.6; 54.1; 68.6; 73.5; 78.2. - Non-oil balance excluding grants (2003–09): -55.6; -31.6; -45.2; -65.1; -68.1; -63.8; -65.7. - Non-oil balance including grants (2003–09): -39.8; -19.2; -34.9; -52.7; -55.3; -58.3; -60.3. - Net revenue from oil (years shown): 65.3; 38.8; 27.7; 22.4. - Overall balance including grants (2003–09): -39.8; -19.2; -34.9; 12.6; -16.5; -30.6; -37.9. - Financing (2003–09): 39.8; 19.2; 34.9; -12.6; 16.5; 22.1; 25.8. - Domestic financing (net) 25.0; -5.3; 20.6; -23.5; -10.0; -12.6; -11.2. - Banking system 20.5; -4.0; 33.1; -22.6; -13.0; -12.6; -11.2. - External financing 14.0; 13.6; 11.1; 11.6; 26.5; 34.8; 37.0. - Exceptional financing 13.3; 13.6; 14.9; 13.7; 3.9; 3.3; 3.4. - Notes: 1/ Cash basis adjusted for extrabudgetary spending until 2004, payment order basis thereafter. 2/ Excludes disbursements made directly by EU fishing companies under the agreement. 3/ Reflecting the authorities' new classification, which is closer to GFS standards; estimates for 2003-2005. 4/ Including transfers to public entities outside central government. 5/ Starting with the 2006 projection column, including public investment from public enterprises financed through the government onlending of foreign assistance. 6/ MDRI debt relief from the Fund is treated as exceptional financing and excluded from the BCM financing. 7/ Including telecom license proceeds equal to $103 million. ### Central Government Operations (detailed fiscal table, selected 2003–09 levels in billions of UM) - Non-oil revenue and grants (2003–09): 35.4; 32.9; 26.4; 28.4; 25.0; 24.3; 24.1. - Non-oil revenue (2003–09): 30.7; 29.7; 24.4; 26.1; 23.1; 23.5; 23.4. - Tax revenue (2003–09): 13.3; 14.9; 15.3; 16.0; 13.5; 13.7; 14.0. - Nontax revenue (2003–09): 17.5; 14.8; 9.1; 10.2; 9.6; 9.8; 9.4. - EU fishing compensation (2003–09): 7.4; 7.4; 5.5; 4.9; 4.2; 4.0; 3.8. - SNIM dividend entries: 1.4; 1.3; 1.1; 1.0. - Total grants (2003–09): 4.7; 3.1; 2.1; 2.1; 1.9; 0.8; 0.7. - Multilateral HIPC assistance: 1.9; 1.3; 1.5; 1.0; 0.5; 0.3; 0.3. - Expenditure and net lending (2003–09): 47.2; 37.7; 33.5; 37.7; 33.2; 32.3; 31.9. - Current expenditure (2003–09): 33.8; 26.8; 25.5; 27.5; 23.1; 22.2; 21.7. - Compensation of employees (2003–09): 9.1; 8.5; 7.8; 9.0; 8.9; 8.8; 8.7. - Capital expenditure (2003–09): 13.0; 10.9; 7.4; 9.4; 10.2; 10.2; 10.2. - Non-oil balance excluding grants (2003–09): -16.4; -8.0; -9.1; -11.3; -10.1; -8.8; -8.5. - Non-oil balance including grants (2003–09): -11.8; -4.8; -7.0; -9.1; -8.2; -8.1; -7.8. - Overall balance including grants (2003–09): -11.8; -4.8; -7.0; 2.2; -2.4; -4.2; -4.9. - Financing (2003–09): 11.8; 4.8; 7.0; -2.2; 2.4; 3.1; 3.4. - Domestic financing (net): 7.4; -1.3; 4.1; -4.1; -1.5; -1.7; -1.5. - External financing: 4.1; 3.4; 2.2; 2.0; 3.9; 4.8; 4.8. - Memorandum items: - Oil revenue (millions of $): 243.1; 144.5; 103.2; 83.4 (2006 onward projections noted). - Oil account balance e.o.p. (millions of $): 60.7 entries for 2006 onward. - Total public debt e.o.p.: 247.3; 210.4; 135.8; 116.7; 112.1; 109.9. - Stock of Treasury bills (billions of UM): 55.4; 52.1; 39.5; 32.4; 28.8. - Stock of (identified) domestic arrears (billions of UM): 50.2; 34.7; 7.0; 7.0; 7.0. - Treasury float (billions of UM): 21.2; 8.7; 7.0; 7.0; 7.0. - Poverty-reducing expenditure (In UM billion): 52.8; 64.1; 80; 100 (projection entries). - MDRI savings (In UM billion): 3.1; 5.9; 5.4; 5.6. - Sources: Mauritanian authorities; and Fund staff estimates and projections. - Notes: See table footnotes for methodological notes on cash basis, EU fishing disbursements, GFS reclassification, transfers, onlending, MDRI treatment, privatization proceeds. ### Monetary program, 2003–07 (selected end-period stocks, in billions of ouguiya) - Net foreign assets (end-period): -57.5; -68.5; -71.0; -8.2; -5.6; -0.1; 30.6; 13.7. - BCM component: -48.3; -47.0; -38.9; -0.7; 3.6; 8.6; 38.4; 26.7. - Commercial banks component: -9.1; -21.4; -32.1; -7.5; -9.2; -8.7; -7.8; -13.0. - Net domestic assets: 175.7; 202.7; 224.8; 186.3; 191.8; 192.9; 171.2; 195.2. - Domestic credit: 198.9; 264.0; 303.1; 274.2; 278.3; 279.3; 257.7; 281.7. - Net credit to the government: 82.0; 129.9; 159.7; 124.2; 122.5; 116.4; 94.5; 111.3. - Credit to the economy: 116.9; 134.1; 143.5; 150.0; 155.8; 163.0; 163.2; 170.4. - Broad money (end period): 118.3; 134.3; 153.8; 178.1; 186.3; 192.9; 201.9; 209.0. - Currency in circulation: 44.3; 42.8; 49.1; 56.9; 59.5; 61.6; 64.5; 66.7. - Gross international reserves (in millions of U.S. dollars): 31.7; 38.8; 70.2; 173.5; 187.3; 203.5; 282.3; 228.4. - Net international reserves (in millions of U.S. dollars): -197.7; -210.7; -162.5; -15.3; 0.9; 19.6; 130.4; 87.1. - Sources: Mauritanian authorities; and Fund staff estimates and projections. - Notes: 1/ At program exchange rates. 2/ Starting in 2006, reflects MDRI debt relief from the Fund. 3/ Change relative to the end of the previous year. ### Millennium Development Goals (selected indicators) - MDG 1: Eradicate extreme poverty and hunger - Overall poverty incidence: 1990 56.6; 1996 54.3; 2000 51.0; 2004 ...; 2010 46.7; 2015 35.0; 2025 25.0; 2015 (target) 28.3. - Incidence of poverty in Nouakchott: 36.1; 25.4; 29.2; ...; 25.9. - Prevalence of child malnutrition: 47.6; ...; 32.0; ...; 30.2; 26.0; 21.0; 23.8. - MDG 2: Achieve universal primary education - Gross primary enrollment ratio: 46.0; 82.0; 87.0; 88.0; 95.1; 98.0; 100.0; 100.0. - Retention rate at the entrance of the 5th grade in primary education: ...; 55.0; 48.0; 48.8; 68.8; 100.0; 100.0. - MDG 3: Promote gender equality - Share of girls in total primary enrollment: 42.0; 46.0; 48.0; 48.0; 49.0; 49.8; 50.0; 50.0. - MDG 4: Reduce child mortality - Child mortality (under five years): 137.0; 122.0; 135.0; ...; ...; 128.0; 55.0; 45.7. *Source: _cr0743 - 45 (https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0743.pdf)* ### 5. Improve maternal health ### 5. Improve maternal health ### Findings and objectives - Reduce the rate of maternal mortality: 747.0......400.0300.0... - This item is presented within the Millennium Development Goals framework (Goals 1–7), specifically linked to Goal 5: "Reduce by three quarters, between 1990 and 2015, the under-five mortality rate." (text as in source) ### Related MDG indicators and context (as presented) - Goal 5 reference text exactly as in source: "Goal 5. Reduce by three quarters, between 1990 and 2015, the under-five mortality rate." - Goal 6 (linked health goal) indicator fragment: "Reduce b y half the incidence of HIV/AIDS......0.50.60.5<1.1<1.01.0" (preserved verbatim) - Goal 7 environmental access indicators (contextual household services): - "Access to improved water source......60.4...63.765.075.0..." - "Access to electricit y......18.0...23.8........." ### Key statistics and demographic context (memorial items in source) - Population (in millions) 1/1.962.272.512.632.82......... - UNDP Human Development Index0.3870.4230.4490.465............ - Gini index of inequalit y...0.340.39...0.390.400.41... - Child vaccination rate (in percent)...30407093......... - Sources: Mauritanian authorities, World Development Indicators, and UNDP Human Development Indicators (2004). - Footnote from table: "1/ Estimates based on the population census data in 1988 and 2000." ### Presentation context within the document - The maternal mortality reduction target appears as an entry in "Table 6. Mauritania: Millennium Development Goals, 1990–2015" (table fragments supplied). - The MDG table and adjacent tables provide macroeconomic and social context (population, HDI, Gini, vaccination rates) used to frame social targets including maternal health. *Source: _cr0743 - 5. Improve maternal health (excerpts) — IMF PDF content provided by user* ### 5. Reflecting a strong revenue performance and the maintenance of expenditure within ### _cr0743 - 5. Reflecting a strong revenue performance and the maintenance of expenditure within ### Fiscal performance and cash management (H1 2006) - Budget deficit, excluding oil revenue and grants, was limited to 4.6 percent of annual non-oil GDP during the first half of 2006. - Tax collection overperformed by about 10 percent owing to concerted efforts by the government. - Treasury float reduced to UM 6.2 billion at end-June, equivalent to about two weeks of domestically financed expenditure (excluding wages and interest). ### Unanticipated receipts and use of proceeds - One-off $100 million bonus payment in June 2006 from settlement with Woodside. - Proceeds of the sale of the third cellular telephone license in July 2006: $103 million. - Annual fishing agreement compensation with the EU for 2006–12: EUR 86 million (in addition to charges paid by EU vessels). - Cancellation of multilateral debt under the MDRI. - Policy decision (July 2006 supplementary budget): - Provide additional domestically financed spending equivalent to the additional fishing revenue. - Allocate the remainder of unanticipated foreign exchange receipts to saving and to reduction of domestic debt. - Objective: strengthen external position and pave the way for foreign exchange market reform and restoration of convertibility of the ouguiya under Article VIII obligations. ### Foreign exchange market and payments system reforms - Drafted legislation organizing the foreign exchange market and adopted accompanying measures: - Regulations on commercial banks' foreign exchange position and reserve requirements on banks’ foreign currency deposits. - Gradual liberalization of fish export proceeds: surrender requirements for SMCP reduced from 70 percent (early 2005) to 25 percent in October 2006; elimination of surrender requirements on other fish exports proceeds. - Reorganization of manual foreign exchange operations by raising thresholds for prior BCM authorization. - October 27: eliminated the remaining restriction on payments for current external transactions. - Payments system modernization: - August 2006: adopted a new law on electronic means of payment. - Adopted decrees setting up anti–money laundering and counter–terrorism financing framework and established the responsible commission with appointed governing bodies. ### Hydrocarbon revenue transparency and pricing - Created a national hydrocarbon revenue fund (FNRH) managed by the ministry of finance and the BCM; contract approved by the Council of Ministers in June 2006; FNRH operating since that date; all government hydrocarbon revenues transferred to FNRH. - Monthly published report on the oil sector includes production and sharing, exports by participant, prices, and government oil revenue. - Set up an Extractive Industry Transparency Initiative (EITI) Committee and launched recruitment of an international consulting firm to monitor implementation. - Retail prices of refined petroleum products adjusted every two months per existing adjustment mechanism to prevent further accumulation of revenue losses by distribution companies. ### Medium-term macroeconomic framework (PRSP2 and program objectives) - PRSP2 target: reduce incidence of poverty from 47 percent in 2004 to less than 35 percent en 2010. - PRSP2 primary objectives: (a) raising growth; (b) improving economic opportunities for the poor; (c) developing human resources and increasing access to basic social services; (d) strengthening governance; (e) developing an efficient monitoring and evaluation system. - Economic program (2006–09) aims: - Raise average annual non-oil GDP growth to 5½ percent. - Bring inflation under 5 percent. - Build up official reserves to ensure coverage equivalent to about three months of imports from end-2007 onward. - Key assumptions and strategies: - Growth driven by private sector start-up of oil, gold, and copper extraction, prudent macroeconomic policies, major infrastructure programs, and structural reforms. - Medium-term fiscal projections assume development of two new oilfields, Thiof and Tevet, in 2008, allowing substantial increase in oil revenues starting 2010. - Oil revenue management to remain transparent with annual audits by internationally renowned firms and publication in the context of EITI and FNRH accounts. ### Tax reform and public expenditure priorities - Tax reform objectives: - Reduce adverse impact of current structure on private sector growth and broaden tax base (notably VAT) without penalizing the most vulnerable. - Planned measures include: - Rationalize import taxation by adopting a new tariff schedule consistent with simple economic categorization of products; reinstate VAT on products not classified as essential; lower the statistical tax rate. - Improve VAT administration via efficient credit reimbursement mechanism and raise registration threshold common to VAT and corporate tax (régime du bénéfice réel). - Gradually reduce minimum presumptive corporate income tax. - Strengthen tax administration capacity. - Complete an overall review of the tax system with technical assistance; prepare additional measures on direct taxation and VAT strengthening. - Public expenditure: - Align sectoral resource allocation with PRSP2 targets, prioritize social sectors and poverty-reducing programs. - Medium-term fiscal framework targets almost a doubling in appropriation ceilings for poverty reduction spending between 2006 and 2009. - Improve public expenditure transparency and effectiveness through strengthened ex-ante and ex-post controls and revision of the public procurement code. ### Financial sector, monetary policy, and exchange rate strategy - Financial sector reform priorities (post-FSAP): - Strengthen legislative and regulatory environment. - Enhance transparency of accounting practices and reliability of financial statements. - Strengthen supervisory institutions' capacity. - Improve legal framework for collateral and implement AML/CFT regulations. - Gradually develop financial markets: deepen money market, establish foreign exchange market, promote private bond issues. - Public sector capacity building: - Modernize civil service; combat corruption; improve qualifications and remuneration system. - Improve management and oversight of SOEs; develop performance-based culture; adjust public utilities’ rates regularly to balance operating accounts and reduce budgetary drains. - Monetary policy: - Gear toward controlling inflation; broad money growth limited to pace equivalent to nominal non-oil GDP. - BCM to keep policy interest rates at a positive real level and strengthen bank liquidity management. - Encourage development of a secondary market for securities and securitize a portion of government debt to the BCM. - Exchange rate policy: - Develop a more flexible exchange rate policy to manage real exchange rate appreciation and oil-related external shocks. - Foreign exchange market to be developed initially as an auction system managed by the BCM and then expanded to an interbank market. ### Program for the period October 2006–September 2007 — Outlook and targets - 2007 assumptions: - Prudently assume maintenance of oil production at an annual average of 30,000 barrels per day during the remainder of the year. - Non-oil sector growth target: 6.1 percent in 2006 and 7.3 percent in 2007. - Year-on-year inflation target: 7 percent at end-2007. - Growth assumptions include normal rainfall, marked recovery in manufacturing, and consolidation of recovery in construction. #### Monetary and exchange policies (Program specifics) - Broad money growth projected at 15.8 percent in 2006 and 17.3 percent in 2007. - Projected reduction in net credit to government in 2006 expected to be more than offset by strengthening of commercial banks’ net foreign asset position, entailing a modest increase in private sector credit. - Monetary Policy Council to determine monthly intervention rates consistent with program targets. - Liquidity management actions: - Establish a committee for monetary and fiscal coordination and a procedure for weekly liquidity forecasts by end-November 2006. - Adopt new regulations promoting interbank transactions and simplifying tax treatment of bonds’ interest by end-2006. - BCM to introduce central bank certificates of deposit; test open market operations on T-bills in 2007; securitize portion of claims on government into medium- and long-term government bonds. - Reduce penalties for noncompliance with reserve requirements to allow more flexible cash management by commercial banks. - Foreign exchange market: - New foreign exchange market to open by end-December 2006. - Eliminate requirement to surrender 25 percent of SMCP export proceeds to the BCM before that date. - Foreign exchange market management software to be tested and validated by end-November. - Once operational, intervention policy objective is to smooth daily fluctuations. #### Fiscal policy (Program specifics) - End-2006 basic non-oil deficit objective (excluding grants, interest on external debt and foreign-financed expenditure): UM 25 billion (equivalent to 4.4 percent of non-oil GDP), slightly lower than deficit implied by supplementary budget (UM 28 billion). - Strategy: offset additional spending needs identified after budget adoption with savings on nonpriority operating expenditure and the postponement to 2007 of some disbursements for ongoing investment projects. - 2007 budget: - Basic non-oil deficit of UM 26 billion (corresponding to a ½-percent decline in the deficit-to-GDP ratio) to finance priority investment programs. - Based on prudent non-oil revenue assumptions (including impact of 2007 import taxation reforms) and comprehensive realistic expenditure projections. - Revenue measures and projections: - New customs tariff to enter into effect in January 2007, largely in line with neighboring WAEMU tariffs. - Gradual elimination of exceptions to tariff classification principles. - Rice tariff (presently 20 percent) to be revised in the 2008 budget law at the latest as part of a restructuring plan and new rainfed agriculture strategy. - Presumptive corporate income tax rate lowered from 4 percent to 3.5 percent. - Statistical tax extended to all imports and rate reduced to 1 percent. - VAT exemptions on 11 products (meats and some dairy products) eliminated. - Introduce a 7.5 percent excise tax on sugar. - Overall, these measures expected to generate about 0.4 percent of non-oil GDP in additional revenue. - Initiate reforms to improve taxation of the informal sector and simplify ITS and IGR. - Current expenditure measures for 2007: - Second phase of wage increases initiated in 2006. - Slight decrease in expenditure on goods and services. - Appreciable contraction in subsidies to public enterprises. - Stabilization of the wage bill as a percentage of non-oil nominal GDP despite substantial increase in base wages (salaire indiciaire) and staff increases in priority sectors (health and education). - Start-up of national health insurance fund for civil service employees and retirees in January 2007 limited in 2007 and will not result in additional government costs due to new user contribution. - Centralized expenditure as a percentage of GDP to fall by 2.0 percent due to savings identified in 2006. - Gradual rise in public utility rates expected to yield savings around 1 percent of GDP in transfers to public enterprises in 2007. - Allocation for incidental and unforeseen expenditure limited to 5 percent of the budget amounts for goods and services and transfers. - Investment expenditure: - Substantial increase reflecting PRSP2 priorities (infrastructure and poverty reduction), more marked for domestically financed expenditure due mainly to expected substantial carryover to 2007 of unused 2006 appropriations. - Financing of the budget deficit: - Mainly by a transfer from the FNRH and by concessional loans. - FNRH transfer limited to UM 38.8 billion, the expected oil revenue in 2007 (assuming a “Chinguitty” price of $56.3 per barrel). - Any additional oil revenue will accrue to the FNRH. *Source: _cr0743 - 5. Reflecting a strong revenue performance and the maintenance of expenditure within* ### 30. We have strengthened further the General Tax Directorate (DGI) through the ### _cr0743 - 30. We have strengthened further the General Tax Directorate (DGI) through the ### Revenue administration and customs - Strengthened the General Tax Directorate (DGI) by: - Adoption by the Cabinet of an ordinance transferring tax collection authority from the Treasury to the directorate. - Computerizing DGI departments. - Developing programs in 2007 to monitor collection enforcement and to reduce and control tax exemptions. - Customs administration measures planned to strengthen operations and fraud control: - Simplify and computerize customs procedures; upgrade human and physical resources. - Install a more recent version of the ASYCUDA computer software. - Introduce modern management tools and establish an antifraud operational mechanism (including tightened controls on fuel supply to small fishing boats). - Continue strengthening control methods for oil exports. - Continue regular data reconciliation between the customs administration and the preshipment inspection company (SGS). ### Oil revenue management and transparency - Continue to abide by transparent management principles introduced in the ordinance of March 2006, including: - Domiciliation of all hydrocarbon revenue in the FNRH. - Inclusion in the budget law of a ceiling on the authorized transfer to the Treasury. - Timeline and actions: - Draft law on optimal management of oil resources to be prepared during the first quarter of 2007 with IMF technical assistance and submitted by end-August 2007 to the future legislature for adoption. - EITI Committee to publish its 2005 report by end-2006 and its 2006 report by end-July 2007. - BCM to select by end-December 2006 an international firm to audit the FNRH and to transmit by end-March 2007 the first annual audit report to the ministry of finance. - An investment committee to be established by end-2006 to prepare operational recommendations on FNRH investments. - By July 2007, revise the oil sector legal framework via an ordinance promulgating the oil code and a new model for production-sharing contracts that will provide for publication of individual contracts and greater transparency in awarding contracts. ### Public finance management reform - Continue reforms initiated in 2005 to refocus the ministry of finance on core functions: - Finalize transfer to line ministries of the payment order authority. - Generalize use of the RACHAD computer application in 2007 (already tested in three ministries). - Address concentrated budget execution in central directorates which produces a long, complex, and poorly performing expenditure circuit. ### Strengthening control institutions and procurement - Strengthen control institutions: IGE, Audit Office (Cour des comptes), and the Finance General Inspectorate (IGF). - Publish annual IGE and IGF reports by end-June 2007. - Publish annual Audit Office report by end-October 2007. - IGE report to mention cases of administrative infractions, management deficiencies, financial offenses, and related administrative and judicial actions. - Adopt a new procurement code by end-June 2007 to: - Improve effectiveness. - Strengthen ex-ante control of budget appropriation. - Separate responsibilities of regulation, awarding of contracts, audit, and appeal. ### Civil service reform - With World Bank support, pursue civil service reform: - October 2006: adopted decrees defining provisions for 15 staff categories (corps). - Complete streamlining of respective pay scales for these categories by end-June 2007. - New scales (except for higher education teachers) will not entail an overall increase in the wage bill. - Additional measures for remuneration streamlining to be incorporated into the 2008 budget law, based on a study to be finalized by September 2007. - Overstaffing reduction: - Prepare by end-September 2007 a plan to adjust staffing to functional needs, based on: - A comprehensive census of government employees to be carried out during the first quarter of 2007. - An assessment of functional needs by ministry to be achieved by end-June 2007. - Anticorruption measures: - Adopt by end-2006 a code of ethics for civil servants and other government employees. - Disseminate the code to all government employees and publish it on the government's website. - Finalize the anticorruption campaign strategy before end-June 2007. ### Financial sector reform - Implement principal FSAP recommendations with IMF and World Bank technical assistance: - Strengthen legal framework: adopt laws governing the central bank, banking activity, and microfinance by end-2006. - Facilitate bank mergers and new investment by increasing banks' minimum capital to UM 1 billion by end-2006. - Enhance transparency and reliability of accounting practices: - Complete international audit of the 2005 financial statements for all commercial banks by end-March 2007 and monitor implementation of auditors' recommendations. - Launch awareness campaign about financial statements of banks and enterprises. - Modernize payment systems: launch interbank electronic card in early 2007. - Improve supervision: strengthen on-site controls and provisioning requirements for nonperforming loans, including maintaining prohibition of dividend distribution while provision shortfalls persist. ### Public enterprises and administered prices - Strengthen SOE financial footing and reduce government role in administered prices: - Clear government arrears to SOE. - Implement rate adjustments for water and electricity every six months starting in January 2007 if necessary to balance projected operating accounts. - Implement a price adjustment mechanism for bottled butane gas in first semester of 2007 with targeted protections for low-income households and the environment. - Budget a subsidy of no more than UM 1.5 billion to SOMAGAZ and other gas bottling companies in 2007. - Adjust petroleum product prices every two months to reflect international market prices and eliminate distribution companies’ revenue losses by end-August 2007. - Sign performance contracts with SOMELEC, SNDE, and SMH by end-June 2007. - BCM to monitor their indebtedness to the banking system monthly starting in January 2007. ### Improvement of economic statistics and BCM safeguards - Adopt a statistical development action plan by the National Statistics Council by end-March 2007 focusing on business surveys, national accounts, and balance of payments statistics; identify actions for GDDS implementation. - ONS to publish a monthly industrial production index beginning in July 2007. - Publish final national accounts for 2003, semifinal accounts for 2004, and provisional accounts for 2005 by end-2006. - Enhance balance of payments data collection and processing; ONS to publish monthly foreign trade data starting in December 2006. - BCM improvements: - Implement IMF safeguards assessment recommendations, including application of international accounting standards and strengthening internal audit procedures. - BCM to perform annual audits of its financial statements and publish them within six months following the closing of accounts. ### External sector policies and financing - Outlook driven by oil and mining exports; expected medium- to long-term improvement in external position. - Oil exports expected to plateau during next three years. - Projected increases: SNIM production; start-up of mining at Akjoujt (copper and gold) and Tasiast (gold). - New EU fishing agreement to generate large and steady government revenue flows. - MDRI debt relief implications: - Substantial debt service reduction of around $11 million in 2006 and $22 million in 2007. - Official reserves targets: - BCM official reserves to cover more than two months of imports (excluding extractive industries imports and imports financed by foreign assistance) by end-2006. - Import coverage of reserves projected to grow to three months by end-2009. - Assumes additional external financing totaling about $120 million mobilized for 2006–09. - Two tranches of concessional balance of payments support from the Arab Monetary Fund totaling about $23 million expected to be mobilized. - Program fully financed during its first year; additional financing sources to be identified in 2008 and 2009. - External borrowing policy: - Consistent with debt sustainability; rely solely on concessional resources. - NPDC to assess each new financing offer for project quality and consistency with PRSP2 priorities and the debt strategy. - NDPC to update the DSA at least every year in the context of medium-term fiscal framework and budget law. - Continue efforts to negotiate settlement of arrears to bilateral partners, including Kuwait and Libya, on terms comparable to Paris Club creditors. ### Risks - Two major risks to program objectives: - Uncertainties regarding commercial viability of proved hydrocarbon deposits and resulting hydrocarbon production volumes. - Vulnerability to exogenous shocks: fluctuations in prices of principal exports (iron, hydrocarbons, and fish) and agricultural/livestock hazards (rainfall, locusts). - Precautions and buffers: - Cautious revenue projections given hydrocarbon uncertainties and exogenous shocks. - Accumulated reserves in the FNRH expected to represent $60 million by end-2006 to help finance the 2007 budget and serve as a macroeconomic stabilization fund. - If final investment decisions on Thiof or Tevet oilfields are not taken by end-2007, non-oil budget deficit targets for 2008 and 2009 will be revised downward to maintain sustainable medium-term fiscal position. ### Program monitoring, reviews, and targets - Government to adopt a budget ordinance for 2007 consistent with policies in paragraphs 25–29 before IMF Executive Board consideration of a three-year PRGF arrangement. - Monitoring framework: - Quantitative performance criteria for end-December 2006 and quantitative indicators for March, June, and September 2007; end-June 2007 indicators to be converted to performance criteria at first program review. - Quantitative criteria, benchmarks, and adjusters defined in the TMU. - Non accumulation of external payment arrears (as defined in the TMU) is a continuous performance criterion. - Program reviews scheduled: first review by March 31, 2007; second review by September 30, 2007. - Selected quantitative targets (from Table 1; cumulative change from end-June 2006 for 2006 targets, and from end-December 2006 for 2007 targets): - Net international reserves of the BCM (floor); in $ million: - Initial level 2006: -103.7 - Preliminary Estimate 2006: 30.6 - Estimate 2006 2/: 88.4 - Program End-June 2007: 16.2 - End-September 2007: 34.9 - End-December 2007 3/: 145.7 - Net domestic assets of the BCM (ceiling); in UM billion: - Initial level 2006: 95.9 - Preliminary Estimate 2006: -1.6 - Estimate 2006 2/: -16.9 - Program End-June 2007: -0.8 - End-September 2007: -3.2 - End-December 2007 3/: -31.1 - Basic non-oil government balance (floor); in UM billion 5/: - Initial level 2006: -12.4 - Preliminary Estimate 2006: -19.4 - Estimate 2006 2/: -13.0 - Program End-June 2007: -11.0 - End-September 2007: -11.2 - End-December 2007 3/: 1.9 - New medium- and long-term nonconcessional debt contracted or guaranteed by the government and the BCM (ceiling); in $ million: - All listed values (Initial level 2006 through End-December 2007 3/): 0.0 - Short-term debt (ceiling); in $ million: - Initial level 2006: 10.9 - Preliminary Estimate 2006: 24.7 - Estimate 2006 2/: 31.6 6/ - Program End-June 2007: -10.4 - End-September 2007: -10.4 - End-December 2007 3/: -42.4 - New external payments arrears (continuous ceiling); in $ million: - Values shown: 0.0 or ... - Treasury float (ceiling); in UM billion 7/: - Initial level 2006: 6.2 - Preliminary Estimate 2006: 7.7 - Estimate 2006 2/: 1.8 - Program End-June 2007: 0.0 - End-September 2007: 0.0 - End-December 2007 3/: 0.0 - Poverty-reducing expenditures (floor); in UM billion 5/ 7/: - Initial level 2006: 20.8 - Estimate 2006 2/: 32.0 - Program End-June 2007: 12.9 - End-September 2007: 31.1 - End-December 2007 3/: 46.1 - Adjustors (in $ million) listed in Table 1 include: - Net international assistance: values 0.0, -2.9, -9.3, -2.8, -9.2, -12.2 - Cumulative disbursements of official loans and grants in foreign currency: all 0.0 - Impact of any additional debt relief: 0.0, 0.9, 0.9, 0.0, 0.0, 0.0 - Cumulative amounts of external cash debt service payments: 0.0, -3.8, -10.2, -2.8, -9.2, -12.2 - FNRH contribution to the budget: 57.2, 39.8, 125.8, 36.1, 72.2, 108.3 - Memorandum item: UM/$ exchange rate (program): 268.6 - Structural performance criteria and benchmarks (Table 2 highlights and dates): - Prior action: Government adoption of 2007 budget ordinance consistent with paragraphs 25–29 of the MEFP. - Performance criteria by End-December 06: - Elimination of the requirement to partially surrender fish export proceeds to the BCM. - Adoption by Cabinet of ordinance on central bank statutes establishing price stability as primary objective of the BCM, protecting governor from arbitrary dismissal, and placing stronger limits on direct monetary financing of the government. - Adoption by Cabinet of ordinance on commercial banking to limit loans to related parties and ensure separation between bank managers and owners. - Structural benchmarks: - Introduction of a new instrument for bank liquidity management. End-January 07 - Semiannual adjustment of water and electricity rates based on estimated operating balance. End-January 07 - Transmission to Fund staff of computerized monthly monitoring of budget execution with a lag of no more than a month (budget allotments, commitments, payment orders). Report available at end-February 2007 1/ (subsequent monthly reports to Fund staff on a monthly basis). - Publication of the audit of BCM's 2006 financial statements. End-June 07 - Submission to parliament of a draft law on a transparent and optimal oil revenue management, consistent with paragraph 32 of the MEFP. End-August 07 *Source: _cr0743 - 30. We have strengthened further the General Tax Directorate (DGI) through the* ### 1. This memorandum sets out the definitions of the quantitative targets for the period ### This memorandum sets out the definitions of the quantitative targets for the period October 1, 2006–September 30, 2007 ### Definitions of key program variables - Period covered: October 1, 2006–September 30, 2007. - Government definition: central government only. - Quantitative targets: ceilings or floors for cumulative changes from the reference date in Table 1 until the end of the month indicated. - Net international reserves (NIR) of the Central Bank of Mauritania (BCM): - Defined as reserve assets of the BCM minus foreign exchange liabilities of the BCM to residents and nonresidents. - Gold holdings valued at the gold price in effect on June 30, 2006: $613.50 per oz. - Program exchange rates for valuation: - 268.6 ouguiya/$ - 1.4794 $/SDR - 1.2713 Euro/$ - other non-dollar currencies as published in the IFS. - Net domestic assets (NDA) of the BCM: - Defined as reserve money minus net foreign assets (NFA) of the BCM. - Reserve money comprises: - (a) currency in circulation (currency outside banks and commercial banks’ cash in vaults); - (b) deposits of commercial banks at the BCM. - NFA = gross foreign assets of the BCM (including foreign assets not included in reserve assets) minus all foreign liabilities of the BCM. - NFA measured at program exchange rates (see NIR). - Government balance (for program monitoring): - Non-oil central government basic balance excluding grants = non-oil government revenue (excluding grants) minus government expenditure (excluding foreign-financed investment expenditure and interest due on external debt). - Measured on treasury data, monitored on a cash basis (recettes encaissées par le Trésor). - Revenues defined per GFSM 2001 excluding oil- and hydrocarbon-related activities and transfers from the National Hydrocarbon Revenue Fund (FNRH) to the budget. - Expenditure monitored on registration of payment orders by the treasury (prise en charge par le Trésor), including interest on domestic debt (paid by treasury or automatically debited from the treasury account at the BCM, including discounts on treasury bills and interest charges on consolidated government debt vis-à-vis the BCM). - New medium- and long-term external nonconcessional debt: - Foreign currency debt with maturities of one year or longer contracted or guaranteed by the government or the BCM with grant element < 35 percent. - Grant element defined as 1 minus the NPV to face value ratio, estimated using OECD commercial interest reference rates. - Applies to debt per point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt and to commitments contracted or guaranteed for which value has not been received. - Short-term debt: - Stock of foreign currency debt with original maturity of less than one year owed or guaranteed by the government or the BCM. - Excludes foreign currency deposits with BCM. - External payments arrears: - Overdue payments (principal or interest) on external debt contracted or guaranteed by the government or the BCM. - Treasury float (Instances de paiement au trésor): - Outstanding stock of payment orders registered at the Treasury and not yet executed. - Poverty-reducing expenditures: - Estimated in accordance with the public expenditures functional classification based on the IMF Fiscal Affairs Department January 2006 technical assistance mission (“Les réformes en cours de la gestion budgétaire et financière”, March 2006). ### Program adjustors - NIR and NDA targets derived from projected amounts of: - FNRH contribution to the budget, and - projected net international assistance. - Net international assistance defined as difference between: - (a) cumulative disbursements of official loans and grants (budget support; excluding HIPC assistance and project-related loans and grants) in foreign currency and impact of any additional debt relief obtained after June 30, 2006; and - (b) cumulative external cash debt service payments (including interest on BCM foreign liabilities). - Adjustments: - If net international assistance or FNRH contribution exceeds (falls short of) projections in Table 1: - NIR floor adjusted upward (downward) and NDA ceiling adjusted downward (upward) by the difference. - NDA adjustment converted into ouguiya at program exchange rates. - Cumulative downward adjustments to NIR limited to $25 million. - Cumulative upward adjustments to NDA limited to the ouguiya equivalent of $25 million at program exchange rates. ### Reporting requirements (timing and content) - All data transmitted electronically; revisions must be promptly communicated with an explanatory note. - BCM (timing in weeks/months after period end or events): - Monthly balance sheet of the BCM and monthly data on: - (a) BCM’s gross foreign exchange reserves (at program exchange rates and at actual official exchange rates), - (b) balances of the FNRH, inflows and outflows (transfers to the treasury account) and their timing, - (c) external debt service including changes in arrears and rescheduling, debt service due and paid in cash, HIPC debt relief provided by multilateral and bilateral creditors, showing amount of HIPC relief provided to the government in the form of grants. - Timing: within two weeks following the end of each month. - Monthly monetary survey, consolidated balance sheet of commercial banks, monthly data on foreign exchange positions of individual commercial banks by currency and consolidated at actual official exchange rates: - Timing: within three weeks from the end of each month. - Data on treasury bills auctions: - Timing: within a week following each auction. - Monthly data on: - exports by main product (iron ore and fish), - customs data on imports by main product categories, - data on SNIM operations, - monthly list of medium- and long-term public or publicly guaranteed external loans contracted during each month, identifying creditor, borrower, amount and currency, maturity and grace period, and interest rate arrangements. - Timing: within one month following the end of each month. - Quarterly complete balance of payments and outstanding stock of external debt (by creditor, by debtor and by currency): - Timing: within one month following the end of each quarter. - Ministry of Finance: - Monthly treasury data on budget operations, revenues (including transfers from the FNRH), expenditures, financing items, operations of special accounts (including new funds in the 2006 Budget Law), execution of the domestically-financed part of the investment budget (capital spending, goods and services, salaries), and Customs and Tax Departments monthly revenue collection reports (Rapports mensuels des recettes). - Timing: within two weeks following the end of each month. - Monthly reports on oil- and other hydrocarbon-related production and financial flows, including oil sales and repartition of oil revenue among partners, compiled with ministry of petroleum and energy, the BCM, and the SMH: - Timing: within one month from the end of each month. - Government revenue from oil- and hydrocarbon-related activities to include all tax and nontax revenue: government part of profit oil, bonuses, tax and nontax revenue from SMH, taxes on profits of foreign oil companies, presumptive taxes on subcontractors (régime forfaitaire). - Ministry of Economic Affairs and Development: - Monthly data on execution of foreign-financed part of investment budget (Consolidated Investment Budget), foreign grants and loans received by government, agencies, and public enterprises by creditor and currency of disbursement. - Timing: within three weeks following the end of each month. - National Statistical Office: - Monthly consumer price index: - Timing: within two weeks following the end of each month. ### Central Government Operations Table (TOFE) definitions - Treasury to prepare monthly budget execution report in TOFE format using these definitions: - Grants: - Sum of foreign project grants (used in foreign-financed investment projects in central government and EPA parts of consolidated investment budget) and foreign program grants for budget support, including multilateral HIPC debt relief on government external debt budget and HIPC debt relief on external debt of BCM and SNIM (including the part of the AFD/BFD debt relief on Cologne terms). - Domestic bank financing of government deficit: - Change in net credit to government from banking system = claims on government minus deposits of government with banking system (excluding deposits of public establishments and other administrative units (EPA) with the BCM, but including the HIPC account). - Domestic nonbank financing of the government deficit: - Net change in holdings of treasury bills by nonbanks. - Domestic arrears: - Net change in the treasury float and in stock of domestic claims on government acknowledged by ministry of finance (including accumulated payment arrears to public enterprises (utilities), international organizations, procurement contracts, and court orders). - External financing: - Sum of: the opposite of change in net position of the FNRH; net disbursements of foreign loans; and exceptional financing. - Exceptional financing composed of: - (a) accumulation of arrears on passive debts and technical arrears (paragraph 9 definition); - (b) debt relief obtained on external government net of the HIPC assistance treated as grants. ### Annex: Definition of debt per No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt - Debt defined as a current contractual liability created through provision of value in form of assets or services requiring future payments of assets or services to discharge principal and/or interest. - Principal forms: - (a) Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits), repurchase agreements, official swap arrangements. - (b) Suppliers’ credits (deferred payments after delivery). - (c) Leases (present value at lease inception of lease payments expected during agreement period, excluding payments for operation, repair, maintenance). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are included. - Failure to make payments on an obligation not considered debt under this definition (e.g., payment on delivery) does not give rise to debt. ### Appendix I — Mauritania: Debt Sustainability Analysis 2006 (summary findings and assumptions) - Overall assessment: - Following substantial HIPC and MDRI relief, Mauritania faces only a moderate risk of debt distress but remains vulnerable to adverse shocks (notably lower-than-projected GDP and export growth). - Baseline scenario assumes authorities obtain debt relief from bilateral creditors that have not yet implemented HIPC; under this, Mauritania’s debt appears sustainable per external and fiscal sustainability criteria. - Ensuring favorable debt dynamics requires prudent macroeconomic policies and careful new borrowing. - Background and recent debt developments: - Significant reduction in external debt burden due to HIPC and MDRI relief. - Substantial MDRI relief in mid-2006 from IMF, IDA, and AfDF—nearly 28 percent of the total end-2005 external debt were written off. - Protracted negotiations with some bilateral non Paris-Club creditors (Algeria, Iraq, Kuwait, Libya, United Arab Emirates) have led to substantial arrears. - Arrears amounted to $1.3 billion at end-2005, representing 46 percent of Mauritania’s total external nominal debt. - A large portion of arrears at end-2005 (nearly $1 billion, mostly late interest charges) originated from liabilities considered “passive debt” and were excluded from the DSA at the HIPC decision point but are included in the present DSA. - Domestic public debt: - Domestic gross claims on government nearly 43 percent of GDP at end-2005, with nearly two-thirds in the form of a consolidated long-term debt vis-à-vis the central bank. - The remainder was short-term debt including treasury bills held by banks and nonbanks and arrears toward domestic suppliers, expected to be eliminated by end-2006. - Basic assumptions used in the DSA: - Framework consistent with government medium-term program but more conservative than second Poverty Reduction Strategy. - Oil production assumptions: - Conservatively assumed oil resources limited; extraction ends before end of projection period. - Baseline: transitory decrease in oil production in 2007–09; production peaks at 65,500 barrels per day in 2012 and declines to zero in 2026. - Cumulative oil production under this profile: 280 million barrels (estimated cumulative capacity of existing Chinguetti deep offshore oil field and two neighboring fields still to be developed). - Scenario does not account for exploration activity outside Chinguetti (on-shore south of Nouakchott, in-land Taoudeni basin). - Non-oil economy: - Assumed spurt of growth early on reflecting new mining developments and step-up in public investment. - Non-oil GDP projected to grow by some 6 percent on average over 2006–15. - After 2015, growth returns to long-term path slightly above 4 percent per annum. - Inflation: - Average annual inflation assumed to decline from 12.5 percent in 2005 to 4 percent in 2010 and stay at 4 percent thereafter. - Real exchange rate: - Projection features degree of real exchange rate appreciation due to oil in medium term; in long run, real exchange rate assumed constant. - Risk and sensitivity: - Standard sensitivity tests reveal vulnerability to adverse shocks (lower-than-projected growth of GDP and exports). - Customized scenario portrays risk of oil production falling short of baseline projections. *This summary is based exclusively on the content of the provided memorandum.* ### Box 1. PRSP and DSA Growth Assumptions ### Box 1. PRSP and DSA Growth Assumptions ### Growth projections and PRSP targets - PRSP targets for 2006–10 aim to achieve most MDGs by 2015. - Poverty incidence projected to decline from 46.7 percent in 2004 to 35 percent in 2010 and 25 percent in 2015, mainly on account of a high growth scenario. - PRSP projected real annual GDP growth at an average of 7 percent between 2006 and 2010, with non-oil real GDP growing at 5.5 percent. - The DSA’s macroeconomic scenario uses more realistic assumptions: lower oil price projections and a downward revision of the potential of the Chinguitty offshore oil field that entered production in February 2006. - Even with scaled-down government oil revenue projections and investment, poverty-reducing spending is projected to increase by 16 percent in real terms between 2006 and 2009. ### Fiscal framework and medium-term stance - Near- to medium-term assumption: maintain a non-oil primary deficit of about 6 percent of non-oil GDP to allow substantial public investment and poverty-reducing spending. - Long-term assumption: gradually tighten fiscal stance to reduce the non-oil primary deficit to 1.7 percent of GDP by 2026, reflecting moderation in public expenditure and diminished reliance on nontax revenue. - Under the assumed oil revenue and public spending profile, oil account deposits at end-2006 will be kept constant initially and used mainly as a stabilization fund; deposits in the National Hydrocarbon Revenue Fund (FNRH) would accumulate again with new oil fields and build up at a declining pace until production ends. - Income generated by FNRH deposits (some $1.2 billion in 2026) would eventually cover the government’s residual financing needs during the post-oil period. ### Public investment program and borrowing composition - Public investment spending prior to 2015 will exceed 9 percent of non-oil GDP on average and decline thereafter to about 8 percent in 2016–26. - Baseline financing: two-thirds of investment spending from domestic resources, one-third from concessional borrowing. - Low oil scenario: no fiscal adjustment assumed; lack of oil revenues forces foreign financing to cover about half of all public investment expenditure. - External borrowing terms projected to become less favorable over time: - Average grant element on new borrowing projected to decline from 42 percent in 2006–09 to 28.5 percent by 2016 and to 6.2 percent by 2026. - External borrowing expected to remain purely on concessional terms until 2009, with gradual blending of nonconcessional resources thereafter. ### Debt burden thresholds and measurement - Debt burden thresholds used are those for poor performers per the World Bank’s 2005 CPIA. - Specific thresholds: 30 (100 / 200) percent for the ratio of the NPV of debt to GDP (exports/government revenue) and 15 (25) percent for the ratio of debt service to exports (government revenue). ### External sustainability — unresolved arrears vs. baseline relief - If no resolution of bilateral creditors’ arrears (permanent roll-over), Mauritania’s external debt is unsustainable: - NPV-of-debt-to-GDP ratio continuously and significantly exceeds the 30 percent threshold. - NPV-of-debt-to-exports ratio breaches the 100 percent threshold. - NPV-of-debt-to-revenue ratio stays above the 200 percent sustainability threshold until 2020. - Baseline scenario assumes HIPC-like treatment: - Debt relief based on Cologne terms starting in 2007: 90 percent write-off of debt outstanding at end-June 2002 that is still under negotiation; remaining 10 percent rescheduled at market rates over 23 years with a 6-year grace period. - Under this hypothesis, all relevant ratios fall below thresholds in 2007 and remain below over the horizon; NPV of external debt converges to 27 percent of GDP by 2026. - Relative to exports, debt burden rises somewhat over time but remains well below 100 percent; debt service-to-exports ratios stay well below applicable thresholds despite projected new borrowing on less concessional terms. ### Sensitivity and stress tests — vulnerabilities - Standardized sensitivity analysis shows resilience to several shocks (GDP growth and nondebt-creating flows) for NPV-to-exports and debt service-to-exports ratios. - Extreme shock—export growth at historical levels minus one standard deviation—results by 2014: - NPV-of-debt-to-GDP = 42 percent - NPV-of-debt-to-exports = 103 percent - Such shocks capture climatic events (droughts, locusts) and possible declines in fisheries receipts. - Stress test results underscore need for prudent policies and contingency planning. ### Fiscal sustainability - Domestic debt assumed to be a small share of total public debt in the long term; rapid reduction of domestic debt (including accelerated repayment of claims to the BCM) is envisaged before significant accumulation in the FNRH. - Nontax non-oil revenues assumed to decrease as a share of GDP to reflect less buoyant fishing revenues. - Under the baseline, all indicators of fiscal sustainability satisfied: - NPV-of-debt-to-GDP ratio declines below the sustainability threshold during 2007–10. - NPV-of-debt-to-revenue and debt-service-to-revenue ratios remain comfortably below thresholds throughout the projection period. - Standard fiscal stress tests highlight sensitivity to reversion of GDP growth and primary balance to historical averages; the most extreme test is real GDP growth in 2007–08 declining to the historical average minus one standard deviation. ### Less favorable oil scenario - Alternative scenario: cumulative oil production reaches only 60 million barrels because operators do not develop two neighboring fields. - Assumptions: no direct fiscal adjustment, rapid depletion of FNRH deposits, additional external borrowing to keep central bank reserves at three months of import cover. - Main impacts: - Upward shift in key NPV-based debt sustainability indicators above sustainability thresholds. - Increased NPV of external debt due to substitution of oil revenue with foreign borrowing. - Debt service-to-exports ratio stays below 15 percent only if additional foreign borrowing is largely concessional (unlikely). - Restoring fiscal sustainability in this scenario would require a fiscal adjustment of about 4 percent of GDP on average for the 2012–26 period, bringing the primary balance close to zero for that period. ### Role of the Oil Fund (FNRH) - Accounting for assets accumulated in the FNRH strengthens long-term debt sustainability conclusions. - In the baseline, the FNRH would have accumulated $1.2 billion, potentially covering about one half of the NPV of external debt at $2.4 billion. - Rationale for accumulating FNRH assets rather than early external debt repayment: - Existing pre-existing external debt is predominantly concessional. - Prudential grounds: mobilizing large concessional borrowing in adverse shocks may not be feasible. *Source: Box 1. PRSP and DSA Growth Assumptions (excerpt).* ### 16. Mauritania’s debt under the baseline scenario is sustainable and the risk of distress ### 16. Mauritania’s debt under the baseline scenario is sustainable and the risk of distress moderate, but remaining vulnerabilities highlight the need for prudent policies ### Baseline assessment and main findings - The baseline DSA scenario is predicated on a resolution with those bilateral creditors that have not yet provided HIPC relief; the baseline assumes such a resolution. - Under the baseline, several critical debt ratios remain below the applicable thresholds over the entire DSA horizon, and the overall risk of debt distress is judged to be moderate. - Key qualitative findings: - Long-term debt sustainability critically hinges on restraining the fiscal position as oil revenue shrinks and on saving financial resources for the post-oil period. - The oil revenue management law to be discussed by the parliament in 2007 is expected to set up mechanisms to ensure a rational fiscal response. - A careful borrowing strategy is required, relying on the most concessional resources available to finance investments needed for growth and export diversification. ### Vulnerabilities and stress-test results - Some standardized stress tests and the country-specific alternative scenario point to vulnerabilities, especially the risk of lower-than-projected export growth. - Sensitivity analyses (Baseline, Resolution of Arrears scenario, 2006–26) — selected indicators: - NPV of external debt (percent of GDP) — Baseline: 70 (2006), 24 (2007), 27 (2008), 30 (2009), 27 (2010), 27 (2011), 27 (2012), 28 (2013), 28 (2014), 28 (2015), 28 (2016), 27 (2026). - Debt service-to-exports ratio (percent) — Baseline: 9.5 (2002), 13.1 (2003), 8.7 (2004), 8.5 (2005), 4.1 (2006), 4.5 (2007), 3.5 (2008), 2.8 (2009), 2.1 (2010), 2.2 (2011), 3.4 (2016), 6.7 (2026). - Total gross financing need (billions of U.S. dollars) — Examples: 0.0 (2002), 0.2 (2003), 0.2 (2004), 0.2 (2005), 0.1 (2006), 0.2 (2007), 0.2 (2008), 0.2 (2009), 0.2 (2010), 0.1 (2011), 0.0 (2016), 0.3 (2026). - Selected stress-test outcomes (Baseline, 2006 values shown and trajectory to 2026): - Standardized alternative A.2 (new public sector loans on less favorable terms in 2007–26) increases NPV-external-debt indicators across the projection horizon (e.g., Baseline 70 → A.2 results: 70, 25, 29, 33, 32, 32, 33, 34, 35, 36, 37, 41 for 2006–2026 sequence shown). - Bound test B2 (export value growth at historical average minus one standard deviation in 2007–08) produces large adverse outcomes (e.g., NPV/external debt percent sequence: 70, 33, 45, 48, 44, 42, 42, 42, 42, 41, 40, 32 for 2006–2026 sequence shown). ### Key macroeconomic and fiscal figures (as reported) - Economic growth and prices (selected entries from Table A1): - Real GDP: 5.4; 13.9; 6.3; 2.6; 3.9; 9.2; 4.4; 3.6; 4.7 (values given in table rows as presented). - Non-oil Real GDP: 5.4; 6.1; 7.3; 4.9; 4.9; 4.6; 4.3; 4.3; 4.6. - Consumer price index (period average): 12.1; 6.4; 8.7; 6.0; 4.5; 4.0; 4.0; 4.0; 4.5. - Investment, savings, and balances (selected entries): - Gross investment: 36.5; 23.2; 23.4; 29.5; 37.5; 32.5; 18.6; 17.0; 20.3. - Oil-related investment: 17.7; 9.0; 8.2; 13.1; 20.5; 16.2; 2.7; 0.0; 3.9. - Gross savings: -10.4; 20.4; 21.2; 15.8; 13.2; 18.4; 23.5; 16.5; 18.5. - Current account (including official transfers and oil): -46.9; -3.1; -2.3; -13.7; -24.3; -14.1; 4.9; 2.4; -0.3. - Consolidated government operations (selected entries): - Revenue and grants: 26.4; 39.7; 30.8; 28.1; 27.0; 29.3; 30.1; 25.2; 27.7. - Expenditure and net lending: 33.5; 37.5; 33.2; 32.3; 31.9; 31.5; 29.1; 24.4; 27.6. - Overall balance: -7.0; 2.2; -2.4; -4.2; -4.9; -2.2; 1.0; 0.8; 0.1. - Non-oil primary balance (including grants): -3.8; -6.3; -6.2; -6.2; -6.2; -6.2; -5.2; -2.2; -3.9. - Memorandum items (selected): - Nominal GDP (billions of ouguiyas): 497, 744, 821, 823, 845, 1,007, 1,309, 2,221, 1,677 (entries as listed in table). - External public debt outstanding ($ million), at end of period: 3,137; 2,335; 2,391; 2,524; 2,695; 2,826; 3,356; 4,275; 4,275. - Gross official reserves of the BCM ($ million), at end of period: 70.2; 173.5; 228.4; 247.6; 258.2; 285.5; 337.8; 725.0; 725.0. - Price of oil ($/barrel): Chinguetti price examples: ...; 60.0; 56.3; 57.3; 55.5; 53.8; 52.4; 63.3; 59.1. - Annual production of oil (millions of barrels) (note): "... Oil production started in 2006 and is projected to end in 2024." (table entries include values such as 11.7; 10.9; 7.3; 5.7; 14.9; 22.2; 10.8; 13.3 in the sequence shown). ### Policy recommendations and required actions - Resolve outstanding arrears with bilateral creditors that have not yet provided HIPC relief; the baseline DSA assumes such resolution. - Implement the oil revenue management law to ensure convincing economic policy and institutional mechanisms to: - Restrain appropriately the fiscal position in response to shrinking oil revenue. - Save financial resources for the post-oil period. - Pursue generally sound macroeconomic management and a careful borrowing strategy: - Rely on the most concessional resources available to finance critical investments for future growth and export diversification. - Strengthen resilience to adverse shocks by addressing vulnerabilities identified in stress tests, notably the risk of lower-than-projected export growth. *Source: IMF staff assessment and tables in “16. Mauritania’s debt under the baseline scenario is sustainable and the risk of distress moderate, but remaining vulnerabilities highlight the need for prudent policies.”* ### 2. New public sector loans on less favorable terms in 2007 ### _cr0743 - 2. New public sector loans on less favorable terms in 2007 ### Bound tests and stress scenarios (2007–08) - B1. Real GDP growth at historical average minus one standard deviation in 2007–08. - B2. Export value growth at historical average minus one standard deviation in 2007–08. - B3. US dollar GDP deflator at historical average minus one standard deviation in 2007–08. - B4. Net non-debt creating flows at historical average minus one standard deviation in 2007–08. - B5. Combination of B1–B4 using one-half standard deviation shocks. - B6. One-time 30 percent nominal depreciation relative to the baseline in 2007.5/ - Notes: - 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline. - 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock. - 4/ Includes official and private transfers and FDI. - 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. - 6/ Grant element assumed on residual financing (i.e., financing required above baseline); applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. ### Key debt and fiscal indicators (selected figures from the Public Sector Debt Sustainability Framework, Baseline Scenario, 2003–26) - Public sector debt (in percent of GDP, unless otherwise indicated): - 2003: 259.5 - 2004: 240.3 - 2005: 212.3 - 2006: 105.2 - 2007: 95.9 - 2008: 98.5 - 2009: 100.1 - 2010: 85.3 - 2011: 78.2 - 2016: 65.0 - 2026: 49.3 - Of which foreign-currency denominated: - 2003: 221.1 - 2004: 196.4 - 2005: 169.6 - 2006: 84.3 - 2007: 78.2 - 2008: 82.4 - 2009: 85.7 - 2010: 75.4 - 2011: 70.8 - 2016: 63.7 - 2026: 48.5 - Change in public sector debt: - 2003: 65.0 - 2004: -19.2 - 2005: -28.0 - 2006: -107.1 - 2007: -9.2 - 2008: 2.6 - 2009: 1.6 - 2010: -14.8 - 2011: -7.1 - 2016: -2.1 - 2026: -1.3 - Identified debt-creating flows: - 2003: -10.2 - 2004: -43.7 - 2005: -37.2 - 2006: -103.9 - 2007: -8.3 - 2008: 3.1 - 2009: 1.5 - 2010: -14.7 - 2011: -9.2 - 2016: -5.9 - 2026: -2.3 - Primary deficit: - 2003: 9.0 - 2004: 1.8 - 2005: 3.8 - 2006: 1.9 - 2007: 6.8 - 2008: -3.9 - 2009: 0.4 - 2010: 2.0 - 2011: 3.0 - 2016: 0.6 - 2026: -0.9 - Revenue and grants (percent of GDP): - 2003: 35.4 - 2004: 32.9 - 2005: 26.4 - 2006: 30.8 - 2007: 25.3 - 2008: 24.7 - 2009: 24.6 - 2010: 23.8 - 2011: 23.7 - 2016: 24.3 - 2026: 21.4 - Grants (subset of revenue and grants): - 2003: 4.7 - 2004: 3.1 - 2005: 2.1 - 2006: 1.7 - 2007: 1.6 - 2008: 0.7 - 2009: 0.6 - 2010: 0.5 - 2011: 0.4 - 2016: 0.2 - 2026: 0.1 - Primary (noninterest) expenditure (percent of GDP): - 2003: 44.4 - 2004: 34.7 - 2005: 30.2 - 2006: 26.9 - 2007: 25.7 - 2008: 26.8 - 2009: 27.6 - 2010: 24.4 - 2011: 22.7 - 2016: 21.3 - 2026: 22.4 - Automatic debt dynamics: - 2003: -14.0 - 2004: -41.6 - 2005: -37.6 - 2006: -68.3 - 2007: -8.3 - 2008: 1.4 - 2009: -1.1 - 2010: -14.9 - 2011: -8.0 - 2016: -2.8 - 2026: -3.3 - Contribution from interest rate/growth differential: - 2003: -11.1 - 2004: -17.8 - 2005: -19.9 - 2006: -35.4 - 2007: -6.9 - 2008: -1.9 - 2009: -3.6 - 2010: -9.9 - 2011: -6.8 - 2016: -2.9 - 2026: -2.4 - Contribution from average real interest rate: - 2003: -0.8 - 2004: -5.0 - 2005: -7.5 - 2006: -9.5 - 2007: -0.6 - 2008: 0.6 - 2009: 0.1 - 2010: -1.4 - 2011: -1.0 - 2016: -0.5 - 2026: -0.3 - Contribution from real GDP growth: - 2003: -10.3 - 2004: -12.8 - 2005: -12.4 - 2006: -25.9 - 2007: -6.3 - 2008: -2.5 - 2009: -3.7 - 2010: -8.4 - 2011: -5.9 - 2016: -2.4 - 2026: -2.1 - Contribution from real exchange rate depreciation: - 2003: -3.0 - 2004: -23.8 - 2005: -17.7 - 2006: -32.9 - 2007: -1.4 - 2008: 3.3 - 2009: 2.5 - 2010: -5.0 - 2011: -1.2 - Other identified debt-creating flows: - 2003: -5.2 - 2004: -3.9 - 2005: -3.4 - 2006: -31.7 - 2007: -0.5 - 2008: -0.4 - 2009: -0.4 - 2010: -0.3 - 2011: -0.3 - 2016: -0.1 - 2026: 0.0 - Debt relief (HIPC and other): - 2003: -5.2 - 2004: -3.9 - 2005: -3.4 - 2006: -31.7 - 2007: -0.5 - 2008: -0.4 - 2009: -0.4 - 2010: -0.3 - 2011: -0.3 - 2016: -0.1 - 2026: 0.0 - Residual, including asset changes: - 2003: 75.2 - 2004: 24.5 - 2005: 9.3 - 2006: -3.2 - 2007: -0.9 - 2008: -0.5 - 2009: 0.0 - 2010: -0.1 - 2011: 2.1 - 2016: 3.8 - 2026: 1.0 - NPV of public sector debt: - 2003: 38.4 - 2004: 43.8 - 2005: 144.3 - 2006: 91.1 - 2007: 41.7 - 2008: 42.8 - 2009: 44.1 - 2010: 37.4 - 2011: 34.3 - 2016: 29.8 - 2026: 27.6 - NPV of public sector debt—foreign-currency denominated: - 2003: 0.0 - 2004: 0.0 - 2005: 101.6 - 2006: 70.2 - 2007: 24.0 - 2008: 26.7 - 2009: 29.7 - 2010: 27.5 - 2011: 26.8 - 2016: 28.5 - 2026: 26.9 - Gross financing need 2/ (percent of GDP): - 2003: 24.6 - 2004: 16.5 - 2005: 18.8 - 2006: 11.4 - 2007: 10.2 - 2008: 10.5 - 2009: 10.8 - 2010: 5.5 - 2011: 2.6 - 2016: 0.6 - 2026: 4.3 - NPV of public sector debt-to-revenue ratio (in percent) 3/: - 2003: 108.5 - 2004: 133.3 - 2005: 546.1 - 2006: 296.0 - 2007: 165.1 - 2008: 173.3 - 2009: 179.4 - 2010: 157.4 - 2011: 144.8 - 2016: 123.1 - 2026: 129.2 - Debt service-to-revenue ratio (in percent) 3/4/: - 2003: 19.9 - 2004: 20.2 - 2005: 24.4 - 2006: 14.0 - 2007: 13.8 - 2008: 14.8 - 2009: 16.2 - 2010: 8.4 - 2011: 6.8 - 2016: 9.0 - 2026: 11.8 - Primary deficit that stabilizes the debt-to-GDP ratio: - 2003: -56.0 - 2004: 21.1 - 2005: 31.7 - 2006: 103.3 - 2007: 9.6 - 2008: -0.5 - 2009: 1.4 - 2010: 15.3 - 2011: 6.2 - 2016: -0.9 - 2026: 2.4 ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (in percent): - 2003: 5.6 - 2004: 5.2 - 2005: 5.4 - 2006: 3.3 - 2007: 3.2 - 2008: 13.9 - 2009: 6.3 - 2010: 2.6 - 2011: 3.9 - 2016: 9.2 - 2026: 7.4 - Average/other: 7.2, 3.7, 4.4, 3.6 - Average nominal interest rate on forex debt (in percent): - 2003: 1.4 - 2004: 1.0 - 2005: 1.1 - 2006: 1.2 - 2007: 0.1 - 2008: 0.9 - 2009: 0.7 - 2010: 0.8 - 2011: 0.7 - 2016: 0.7 - 2026: 0.6 - Additional: 0.7, 1.0, 1.3, 1.2 - Average real interest rate on domestic currency debt (in percent): - 2003: -0.2 - 2004: -7.1 - 2005: -12.1 - 2006: -3.4 - 2007: 5.0 - 2008: -20.7 - 2009: 2.0 - 2010: 8.3 - 2011: 7.1 - 2016: -3.3 - 2026: 0.0 - Additional: -1.1, 6.4, 5.7, 6.1 - Real exchange rate depreciation (in percent, + indicates depreciation): - 2003: -2.0 - 2004: -11.5 - 2005: -9.7 - 2006: 2.3 - 2007: 9.5 - 2008: -22.4 - Inflation rate (GDP deflator, in percent): - 2003: 2.5 - 2004: 11.5 - 2005: 18.9 - 2006: 7.1 - 2007: 5.7 - 2008: 31.4 - 2009: 3.8 - 2010: -2.3 - 2011: -1.2 - 2016: 9.1 - 2026: 5.7 - Additional: 7.8, 3.3, 4.1, 2.9 - Growth of real primary spending (deflated by GDP deflator, in percent): - 2003: 33.4 - 2004: -17.8 - 2005: -8.2 - 2006: 12.3 - 2007: 25.9 - 2008: 1.4 - 2009: 1.5 - 2010: 6.9 - 2011: 7.0 - 2016: -3.5 - 2026: 0.2 - Additional: 2.3, 2.4, 4.4, 3.5 ### Sensitivity analysis and alternative scenarios (Table A6, Baseline scenario 2006–26) - Baseline values for selected indicators (2006–26 excerpts shown in tables/figures): - NPV of Debt-to-GDP Ratio (baseline 2006–26): baseline series includes values like 91, 42, 37, 34, 30, 28 (as shown in Table A5 projections). - Alternative scenarios (selected labels as in table): - A1. Real GDP growth and primary balance are at historical averages. - A2. Primary balance is unchanged from 2006. - A3. Permanently lower GDP growth.1/ - B. Bound tests: B1 through B5 (including one-time 30 percent real depreciation and 10 percent of GDP increase in other debt-creating flows in 2007). - Representative scenario outcomes (selected numeric outputs from Table A6): - For NPV of Debt-to-GDP Ratio (series under Baseline and scenarios shown as sequences like 91 42 43 44 37 34 30 28). - For NPV of Debt-to-Revenue Ratio (baseline and scenarios shown as sequences like 296 165 173 179 157 145 123 129). - For Debt Service-to-Revenue Ratio (baseline and scenarios shown as sequences like 14 16 17 8 6 9 11). - Footnotes: - 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period). - 2/ Revenues are defined inclusive of grants. ### Oil revenue projections and uses (Figure A3 descriptions) - Projections for crude oil exports and government oil revenue, 2006–26, shown in current $ (charts indicate baseline and low oil scenario series for yearly crude oil exports and government oil revenue). - Cumulative oil revenue and its uses shown for baseline and low oil scenario (figures present "Spent" and "Oil account balance" series and cumulative revenue series). ### Indicators of public and publicly guaranteed external debt under alternative scenarios (Figure A4 and A5 highlights) - Indicators plotted 2006–26 include: - NPV of debt-to-GDP ratio (baseline, historical scenario, most extreme stress test, threshold, low oil production scenario). - NPV of debt-to-exports ratio (baseline, historical scenario, most extreme stress test, threshold, low oil production scenario). - Debt service-to-exports ratio (baseline, historical scenario, most extreme stress test, threshold, low oil production scenario). - Notes: - 1/ Most extreme stress test is the test that yields highest ratio in 2016. - 2/ Revenue including grants. ### Appendix II — Mauritania: Relations with the Fund (as of October 31, 2006) - I. Membership: - Status: Joined: September 10, 1963 Article VIII. - II. General Resources Account: - Quota: 64.40 (SDR Million) 100.00 percent of quota. - Fund holdings of currency: 64.40 100.01 - Reserve Position: 0.00 0.00 - III. SDR Department: - Net cumulative allocation: 9.72 100.00 - Holdings: 0.13 1.30 - IV. Outstanding Purchases and Loans: None. - V. Latest Financial Arrangements (approval, expiration, amount approved, amount drawn): - PRGF Jul. 18, 2003 — Nov. 07, 2004: Amount Approved 6.44; Amount Drawn 0.92. - PRGF Jul. 21, 1999 — Dec. 20, 2002: Amount Approved 42.49; Amount Drawn 42.49. - PRGF Jan. 25, 1995 — Jul. 13, 1998: Amount Approved 42.75; Amount Drawn 42.75. - VI. Projected Payments to Fund (In millions of SDRs; forthcoming payments series for 2006–2010): - Charges/Interest: 0.09 0.39 0.39 0.39 0.39 - Total: 0.09 0.39 0.39 0.39 0.39 - VII. Implementation of HIPC Initiative: - Decision point date: Feb. 2000. - Assistance committed by all creditors (US$ millions): 622.00. - Of which: IMF assistance (US$ millions): 46.76 (SDR equivalent in millions) 34.80. - Completion point date: Jun. 2002. - Disbursement of IMF assistance (SDR millions): - Assistance disbursed to the member: 34.80. - Interim assistance: 16.88. - Completion point balance: 17.92. - Additional disbursement of interest income3: 3.63. - Total disbursements: 38.43. - VIII. Implementation of MDRI Assistance: - I. Total Debt Relief (SDR Million): 32.91. - Of which: MDRI: 30.23; HIPC: 2.68. - II. Debt Relief by Facility (SDR Million): - Delivery Date June 2006: PRGF n/a; Total 32.91. - IX. Safeguards Assessments: - A full safeguards assessment of the BCM was completed on May 21, 2004; identified serious vulnerabilities in financial reporting and controls. - Recommendations included audits of reserves and monetary program data, IFRS-based financial statements, and improved controls in reserves management. - A new timetable for implementation of outstanding safeguards recommendations was agreed with the authorities in November 2005. - External audits of FY 2003, FY 2004, and FY 2005 have been completed. - IFRS adopted by the BCM Board; envisaged IFRS-compliant financial statements for FY 2006. - X. Exchange Arrangements: - Currency: ouguiya (UM). De facto pegged to the U.S. dollar. - Since October 24, 2005, $1 = UM 268.6. - BCM circulars (August 2002) set limits on handling foreign bank notes and reimposed a variant of a surrender requirement: originally 70 percent of fishing export receipts to be repatriated via the BCM; reduced to 60 percent in July 2005; cancelled for small-scale pelagic fish exports in July 2006; reduced to 25 percent for exports of SMCP in October 2006. - BCM eliminated foreign exchange rationing in October 2006 and intends to launch a new foreign exchange market by end-2006. - XI. Last Article IV Consultation: - Discussions held in Nouakchott from April 26 to May 9, 2006. - Staff report (IMF Country Report No 06/272) considered by the Executive Board on June 21, 2006. - Executive Board approved the HIPC Completion Point document for Mauritania on June 7, 2002. - XII. FSAP Participation, ROSCs and OFC Assessments: - FSAP preparatory mission visited Nouakchott in February 2005; full mission visited February 19–March 3, 2006. - Final Report on the Fiscal transparency Module of the ROSC based on missions in May 14–24, 2002 and August 6–13, 2002. - XIII. Technical Assistance (since 2001): (section heading present; detailed entries not included in supplied excerpt). *Source: Staff projections and simulations; country authorities; and staff estimates and projections (excerpted from Table A5, Table A6, Figures A1–A5, and Appendix II of the supplied IMF document)._ ### 1. MFD (formerly MAE) ### 1. MFD (formerly MAE) ### Money and banking; Exchange system - Money and banking: - Follow-up TA mission on reform of monetary instruments and assessment of technical assistance needs: February 7–20, 2001. - Resident expert on banking supervision: August 1, 2001–February 2, 2003, and January 6–February 3, 2004. - TA mission on money market instruments: March 7–19, 2006. - Exchange system: - Peripatetic TA missions by panel expert on the exchange system reform: 2001–02. - TA mission on foreign exchange market issues: January 9–23, 2005. - Peripatetic TA missions by panel expert on foreign exchange reserves management: July13–26, 2005. ### Other IMF technical assistance and activities - FAD: - TA mission on tracking poverty-reducing expenditures: October 10–17, 2001. - TA mission on setting up a VAT refund system: November 18–23, 2001. - TA mission on reforming taxes on income and profits: July 7–21, 2003. - TA mission on public expenditure management: April 3–19, 2005. - TA mission on fiscal administration reform: June 14–18, 2005. - TA mission on tax policy: May 25–June 8, 2006. - TA mission on customs administration: June 5–16, 2006. - TA mission on oil revenue management: October 24–November 7, 2006. - LEG: - TA mission on the drafting of laws to combat money laundering and the financing of terrorism: February 23–March 1, 2005. - STA: - TA mission on monetary statistics: January 9–22, 2002. - TA mission on balance of payments statistics: June 17–30, 2003. - TA mission on GDDS: April 14–28, 2004. - TA consultant on banking and monetary statistics: November 8–22, 2005. - TA mission on balance of payments statistics: April 5–18, 2006. - TA mission on monetary and financial statistics: July 13–26, 2006. - AFRITAC: - Several TA missions in 2003–06, including on tax and customs administration, computerization of public expenditure chain, external debt management, public finance statistics, and microfinance supervision and regulation. ### Resident Representative - Mr. Philippe Callier has been the resident representative in Mauritania since October 2004. --- ### Relations with the World Bank Group (as of October 31, 2006) ### Partnership in Mauritania’s Development Strategy - PRSP history and timing: - Mauritania developed its Poverty Reduction Strategy (PRSP) in February 2001. - Two PRSP Progress Reports (PRs) prepared and discussed by the Boards in June 2002 and July 2003. - Final version of the second PRSP (covering 2006–10), based on EPCV 2004, received in October 2006. - PRSP and the Joint Staff Advisory Note (JSAN) due to be sent to the Boards in December 2006. - Political context: - Transition government installed following a coup in August 2005. - Bank officially re-engaged in January 2006 (in accordance with OP7.30 “dealing with de-facto governments”). ### Bank-Fund cooperation and Bank role - Division of lead roles: - Bank leads on sectoral structural reforms, financial sector, privatization, and poverty monitoring and evaluation. - Close collaboration with the IMF on PRSP implementation, public financial management, nascent oil sector, external debt sustainability, poverty and social impact analysis, and private sector development. ### Bank Group Country Assistance Strategy (CAS) and portfolio - CAS: - CAS (FY03–05—extended to cover FY06); next CAS (FY07-11) under preparation and due to be discussed in March 2007. - FY07-11 CAS will align with second PRSP and emphasize private sector development, urban development, rural development and public sector; continued engagement in social sectors and oil revenue management. - Bank approvals and current portfolio: - To date, World Bank approved 59 projects in Mauritania for a total of $1,040 million. - Current portfolio has 11 operations (including a GEF project) for a total of $294.9 million, with an undisbursed balance of $190.6 million as of November 8, 2006. - Portfolio includes three regional projects, for which Mauritania’s share is $66.9 million. - With the regional program, total Mauritania portfolio is $361.8 million. - FY06 and FY07 deliveries: - FY06 deliveries: second Health and Nutrition Project ($10 million); GEF Community-based Watershed Management Project ($6.4 million); Senegal River Basin Multi-Purpose Water Resources Development Project—Credit to Mauritania ($31.78 million); Hydroelectric Project—Credit to Mauritania ($25 million). - First quarter FY07 deliveries: Capacity Building Project (PRECASP—$13 million); Additional Financing Credit to the Second Mining Sector Capacity Building Project ($5 million). - ESW, IDF, TF and other analytical work: - Public Expenditure Review (PER) completed June 2004; PER update completed in FY06. - Update of 2003 Country Economic Memorandum (CEM) completed in FY06. - Investment Climate Assessment (ICA), Financial Sector Assessment Program (FSAP) and Gender Assessment expected in FY07. - Study on Corruption in Mauritania; Sources of Growth study to be completed in FY08. - Poverty assessment based on EPCV 2004 planned in FY08. - IDF grants: $448,000 for Justice Sector (closed September 2005); $273,000 to support accountancy profession (closed October 2006); $349,000 to strengthen public procurement function (ongoing). - Trust Fund for Statistical Capacity Building: $105,930 approved September 2005. - PHRD (closed September 4, 2006): $549,825 to prepare a Public Sector Capacity Building project. - PRSP-TF (closed December 31, 2005): $496,900. ### Main policy reform areas supported by the Bank - Overall support: Bank supports the five priority areas at the core of the PRSP (which will serve as main pillars of the second PRSP). - Key priorities and Bank dialogue: - Accelerate growth and maintain macroeconomic stability: - Focus on identifying and implementing structural reforms and macroeconomic policies through PRECASP and ESW. - Improve access to financial services and business environment through legal and judicial reform. - PDIAIM supports private sector operators in the Senegal valley area. - Anchor growth in the economic sphere of the poor: - Formulate comprehensive rural development strategy and promote sustainable urban development. - Urban: second phase UDP under preparation. - Rural: increase productivity in livestock and agricultural sectors; implement new Livestock Code; ease access to inputs and credit; promote training for farmers; improve village-level services and natural resource management. - Develop human resources and provide access to basic social services: - Education: support National Program for the Development of the Education Sector (PNDSE 2002–10); actions include infrastructure expansion, recruitment of tutors and teachers, training schemes; support expansion of higher education; Education for All Fast Track Initiative: $7 million in 2004 and $2 million in 2005. - Health: accelerate progress toward health and nutrition MDGs; upcoming Health and Nutrition Support Project; achievements include greater access to primary health, improvements in quality of health services, establishment of new benefit packages for rural health personnel, recruitment of additional health personnel; Multisector HIV/AIDS Control Project led from prime minister’s office. - Promote good governance and institutional capacity building: - Government signed UN Convention against Corruption; plans national Anti-corruption Strategy during transition; Bank to support with anti-corruption study. - Bank advises on anti-money laundering (AML) program following AML legislation and Mauritania’s adherence to MENAFATF. - PRECASP supports governance reforms in public expenditure management, decentralization, modernization of public administration, and strengthening civil society. ### Bank-Fund collaboration in specific areas - Public Expenditure Management (PEM): - Joint emphasis on improving PEM, accountability, and transparency following 2004 deterioration in macroeconomic management. - Notable progress: (a) strict prohibition of extra-budgetary spending; (b) satisfactory progress in arrears clearance in the context of the IMF Staff-Monitored Program; (c) preparation of monthly treasury balances and fiscal reports, reconciled with the Central Bank (BCM); (d) adoption of a functional classification to facilitate public expenditure tracking; (e) update of the global Medium-Term Expenditure Framework (MTEF). - Based on progress, World Bank Board approved Mauritania’s MDRI debt relief effective July 1, 2006. - Oil: - Government established National Hydrocarbon Revenue Fund (FNRH), an off-shore account administered by the Central Bank to receive all government oil revenues. - Transparency strengthened through treatment of oil revenues in the 2006 and 2007 budgets; government committed to adhere to the Extractive Industry Transparency Initiative (EITI). - Further work needed to elaborate, finalize and enact the National Hydrocarbon Law. - Bank and Fund support implementation of EITI, management of oil revenues, and defining role of National Hydrocarbon Society (SMH). - World Bank Treasury providing technical assistance to BCM in reserve management, following authorities’ request and in agreement with the IMF. - Financial Sector Reform: - Bank and Fund helping improve financial sector intermediation, mobilize savings, and promote competition. - Financial Sector Study completed in 2004. - Joint Bank/IMF FSAP in late March/early April 2006 found: - (a) Financial services in Mauritania are underdeveloped, with the banking system still accounting for an overwhelming share of the financial sector; - (b) Credit risk, including risk concentration, is Mauritanian banks’ main vulnerability; - (c) Banking supervision has been strengthened but the regulatory framework still lags significantly behind international standards; - (d) Non-bank financial services (e.g., microfinance, insurance) are at an early stage of development. - Authorities requested Bank assistance with FSAP action plan implementation; proposed financial/justice sector project under preparation for delivery in FY08. - Poverty and Social Impact Analysis (PSIA): - Bank and Fund agreed to review poverty and social impact of reforms. - Actions to date: benefit-incidence analysis in health and education; PSIA in mining sector to evaluate impact of reducing auxiliary services provided by SNIM. - Additional analytical work: survey on dynamics of rural labor markets (finalized); poverty maps (ongoing); in-depth poverty assessment scheduled for delivery in FY08. - Contact persons: - Mr. James Bond, Country Director, ext. 5339-6021; - Mr. Francois Rantrua, Country Manager, ext. 5353-312; - Mr. Nicola Pontara, Senior Economist, ext. 80400. --- ### Statement by the IMF Staff Representative (December 18, 2006) - Purpose: - Summarizes information on recent economic developments available since staff report for PRGF request circulated December 4, 2006; information does not alter staff appraisal thrust. - Prior action: - Prior action related to government’s adoption of a 2007 budget ordinance was observed; ordinance consistent with paragraphs 25–29 of the MEFP was adopted by the Council of Ministers on December 1. - Inflation: - Monthly inflation was less than 0.6 percent in both October and November 2006, bringing the 12-month rate of inflation to 9.1 percent in November 2006, in line with program projections. - Inflation driven by foodstuff prices, both local and imported. - Fishing agreement revenues: - Adoption of the 2007 budget provides for fishing-related spending in line with agreement with the EU, enabling first disbursement of EU annual compensation by year-end. - New agreement will yield annual revenue of €108 million over six years, of which €86 million will be disbursed from the EU budget and €22 million directly by the EU fishing companies. - Exchange restriction: - On December 14, 2006, authorities eliminated the requirement to partially surrender fish export proceeds to the BCM. --- ### Press Release No. 06/288 (December 18, 2006) - IMF Executive Board decision: - Approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Islamic Republic of Mauritania in an amount equivalent to SDR 16.1 million (about US$24.2 million). - Decision enables Mauritania to request immediately a disbursement in an amount equivalent to SDR 4.52 million (about US$6.8 million). - Statement by Mr. Murilo Portugal, Deputy Managing Director and Acting Chair: - Noted strong economic performance since beginning of 2006: real GDP grew at a double-digit rate, mainly driven by start of oil production. - Inflation was kept under control, aided by sound macroeconomic policies, and external position continued to strengthen. - Pace of structural reforms continued, including elimination of remaining exchange restriction in October 2006. - New three-year PRGF-supported program seeks to consolidate progress achieved under the Staff-Monitored Program toward macroeconomic stabilization, sustain rapid growth, further reduce inflation, and build up official reserves. - Program sets an ambitious structural reform agenda based on a new poverty reduction strategy covering 2006– (text truncated in source). *Source: _cr0743 - 1. MFD (formerly MAE) (PDF chapter/section).* ### 10. The program envisages key reforms in the public and financial sectors with a view to ### _cr0743 - 10. The program envisages key reforms in the public and financial sectors with a view to ### Program overview and objectives - The proposed PRGF-supported program builds on the SMP (January-June 2006) and derives from the authorities’ second Poverty Reduction Strategy Paper (PRSP) covering 2006-10. - PRSP objectives: ensure higher growth and economic stability; improve economic opportunities for the poor; develop human resources and access to basic social services; strengthen governance; design and implement effective monitoring and evaluation systems. - PRSP target: reduction in the incidence of poverty of 12 percentage points between 2004 and 2010. - Program macro targets over the next three years: - Real GDP growth of above 4 percent. - Gradually reduce inflation to below 5 percent. - Bring official reserves to about three months of imports. - First-year fiscal stance: - Tariff and tax policy reforms. - Reduction in subsidies to public enterprises. - Slight decrease in the non-oil primary deficit and a substantial increase in capital spending and poverty-reducing expenditures. - Structural reforms envisaged: ambitious public and financial sector reforms to foster private-sector led growth and diversification. ### Recent developments (context and performance) - Political/democratic timetable: parliamentary and local elections in November and December 2006; presidential elections in March 2007. - SMP (January-June 2006) outcomes: all quantitative targets and structural benchmarks were observed. - Inflation and reserves: - Annualized inflation remained below 10 percent during the first half of 2006. - International reserves reached the program level; parallel foreign exchange market premium remained nil. - Revenue and monetary developments: - Government revenues boosted by strong tax collection. - Authorities maintained a prudent monetary stance; broad money supply growth remained significantly below program targets. - Since June 2006 authorities continued prudent fiscal and monetary policies and progressed on public finance management and foreign exchange market liberalization. ### Key economic indicators and recent shocks - 2006 performance and receipts: - Real GDP expected to reach 14 percent, approximately, in 2006. - Non-oil real GDP growth expected to attain 6.1 percent in 2006, from 5.4 percent in 2005. - Central bank foreign exchange reserves rose from one month of imports cover in 2005 to a projected 2.3 months at end-2006. - Unexpected revenues in 2006 included: - $100 million bonus payment from the oil operator Woodside. - $103 million proceeds from the sale of the third cellular telephone license. - Annual compensation of 86 million euros from a fishing agreement with the European Union over the period 2006-12. - Acknowledged vulnerabilities: recent technical difficulties in the oil sector and revision of oil production prospects over the medium term. ### Fiscal and public sector policies (planned reforms and measures) - Tax and tariff reforms: - New customs tariff entering into effect in January 2007, largely in line with WAEMU neighboring tariffs. - Broadening the tax base through elimination of VAT exemptions on a number of food products. - Introduction of an excise tax on sugar. - Revision of the present tariff rate on rice (currently 20 percent) in the 2008 budget law, at the latest. - Strengthening of VAT administration. - Wage and civil service reforms: - 2007 budget provides for the second phase of wage increases initiated in 2006. - Civil service reform (with World Bank support) to eliminate significant overstaffing and adjust staff to government functional needs. - Adoption by end-2006 of a code of ethics for civil servants; the code will be published on the government’s website. - Strengthening state control institutions (Inspection Générale des Finances and the Cour des Comptes). - Subsidies and public enterprises: - Subsidies to public enterprises will be reduced. - Petroleum product prices adjusted every two months to reflect international market prices; expected to eliminate distribution companies’ revenue losses by end-august 2007. - Performance contracts with the national electricity company, the water company and the hydrocarbon company to be signed by end-June 2007. - Launching in January 2007 of the activities of the Caisse Nationale d’Assurance Maladie will not result in additional government costs, as broadening of coverage will be covered by a new user contribution. ### Oil sector governance and management - Transparency and institutional steps: - Creation and operation of the National Hydrocarbon Revenue Fund (FNRH) since June 2006; all government hydrocarbon revenues transferred to this fund. - Budget law includes a ceiling on authorized transfer of these resources to the Treasury. - Draft law on optimal management of oil resources to be prepared during the first quarter of 2007 with IMF technical assistance and submitted by end-August 2007 to the future legislature. - Adherence to the EITI; establishment of an EITI Committee and launch of recruitment of an international consulting firm to monitor implementation. - Fiscal implications: - Less favorable oil revenue projections imply the oil fund contribution to budget financing is expected to decline over the period 2006-09. - Additional fiscal adjustment may be needed in 2008/09 if the declining trend in oil production is not reversed. ### Monetary and exchange rate policies - Monetary stance and instruments: - Maintain a prudent monetary policy and limit broad money growth to a pace equivalent to that of nominal non-oil GDP. - Central bank to keep policy interest rates at a positive real level. - Encourage development of a secondary market for securities and securitize a portion of government debt to the central bank. - Introduce central bank certificates of deposit as a new liquidity management instrument to disconnect liquidity management from Treasury bill issuance pace. - Exchange rate and foreign exchange market reforms: - Move toward greater exchange rate flexibility to manage real appreciation and oil-related external shocks. - October 2006: elimination of remaining restrictions on payments for current external transactions consistent with the Fund’s Article VIII of Agreement. - New foreign exchange market opening by end-December 2006: initially an auction system managed by the central bank, to be expanded to an interbank market; central bank interventions will aim to smooth daily fluctuations. ### Financial sector reforms - Reforms consistent with the 2006 FSAP recommendations, including: - Strengthen legislative and regulatory environment for the financial sector. - Enhance transparency of financial sector accounting practices and reliability of financial statements. - Strengthen capacity of supervisory institutions. - Improve legal framework for collateral and implement regulations on combating money-laundering and the financing of terrorism. - Gradually develop financial markets, including deepening the money market. - Central bank governance and safeguards: - Continue implementing recommendations of Fund safeguards assessment reports, including the updated 2004 safeguards assessment. - BCM intends to apply international accounting and reporting standards, strengthen internal audit procedures, and publish annual audits of its financial statements within six months following the closing of accounts. ### Risks, scenarios, and mitigation - Main risks to the program: - Lingering uncertainties about oil production prospects. - Scheduled political change in May 2007 (elections timetable noted earlier). - Weather-related shocks and natural hazards (notably drought and locusts invasions). - Program design mitigations: - Reliance exclusively on concessional external financing to ensure external sustainability. - Continue seeking settlement of debt issues with creditors that have not yet provided HIPC Initiative relief. - Program mitigates risks in part but acknowledges additional fiscal adjustment may be required if oil production continues to decline. ### Key numeric highlights (selected) - PRSP target: reduction in the incidence of poverty of 12 percentage points between 2004 and 2010. - Macroeconomic program targets: - Real GDP growth of above 4 percent over the next three years. - Inflation to below 5 percent. - Official reserves to about three months of imports. - 2006 performance: - Real GDP expected to reach 14 percent, approximately, in 2006. - Non-oil real GDP growth expected to attain 6.1 percent in 2006, from 5.4 percent in 2005. - Central bank reserves projected at 2.3 months of imports at end-2006 (up from one month in 2005). - Significant 2006 one-off revenues: - $100 million (Woodside bonus). - $103 million (third cellular license). - 86 million euros annually under the EU fishing agreement for 2006-12. - Timing of key reforms and measures: - New customs tariff effective January 2007. - New foreign exchange market to open by end-December 2006 (auction system initially). - Draft law on optimal management of oil resources prepared in Q1 2007 and submitted by end-August 2007. - Performance contracts signed with key public utilities by end-June 2007. - Petroleum prices adjusted every two months to reflect international market prices; distribution companies’ revenue losses targeted to be eliminated by end-august 2007. - Code of ethics for civil servants adopted by end-2006 and published on the government’s website. - Caisse Nationale d’Assurance Maladie activities launching in January 2007 (financed by new user contribution). *Statement by Laurean W. Rutayisire, Executive Director for Islamic Republic of Mauritania, December 18, 2006.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0743.pdf_