Mali and the IMF

Press Release: IMF Completes in Principle Fifth Review Under Mali's PRGF Arrangement and Approves US$9 million Disbursement

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MaliLetter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Bamako, February 13, 2003

The following item is a Letter of Intent of the government of Mali, which describes the policies that Mali intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Mali, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Use the free Adobe Acrobat Reader to view Tables 1-3.

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. On behalf of the government of Mali, please find attached Mali's memorandum of economic and financial policies for 2003. This memorandum has been prepared for the fifth review of the program supported by the poverty reduction and growth facility (PRGF) that was approved by the Executive Board of the IMF in August 1999. The memorandum describes the progress made in implementing the program up to October 2002, and the objectives to be reached by the end of the program in August 2003 and during the whole of 2003, including the policies to be pursued in reaching them.

2. Mali achieved strong growth in 2002 as a result of adequate rainfall, significant progress with the reform of the cotton sector, and an unexpected increase in gold production. Despite these successes, economic activity in 2003 may decrease due to poor rainfall, the drop in the price of cotton on world markets, a decline in gold production, and the impact of the crisis in Côte d'Ivoire.

3. The government has been implementing the PRGF-supported program throughout 2002. The quantitative performance criteria and benchmarks up to end-September 2002 have been observed. The structural performance criteria and benchmarks for 2002 were observed except for a benchmark that was satisfied a month late and another, concerning the reform of the cotton sector, that is expected to be met by June 2003. In the case of this last benchmark, the studies necessary for preparing a detailed plan of the future stages of the cotton sector reform took more time than expected, and the authorities have decided to conduct a poverty and social impact assessment of the proposed policies with the assistance of the World Bank.

4. The government notes that Mali has fulfilled the essential conditions for reaching its completion point under the HIPC Initiative. Since its adoption in May 2002, the government has begun to implement the poverty reduction strategy paper (PRSP), which was prepared by a process that included participation by all elements of civil society. The government is thus counting on continued Fund support to help it reach the program objectives and looks forward to the conclusion of the PRGF review.

5. The government remains determined to execute the set of reforms and measures embodied in the program. The policies and measures described in the memorandum are appropriate for achieving the goals of the program, and the government will take any other measures that may be found necessary to that end. The IMF and the government of Mali will conduct a sixth and final review of the PRGF-supported program by end-May 2003 to assess progress made with its implementation.

6. Finally, the government will provide the Fund staff with all of the information described in the technical memorandum of understanding attached to this memorandum. As in the past, the government intends to publish its memorandum of economic and financial policies and the attached technical memorandum of understanding, and authorizes the Fund to publish the staff report.

Sincerely yours,


Bassary Touré
Minister of Economy and Finance


Memorandum of Economic and Financial Policies for 2002 and 2003

Bamako, February 13, 2003


1. The government continued to implement its economic and financial program in 2002, thereby reducing Mali's internal and external imbalances. The program is supported by the International Monetary Fund through a Poverty Reduction and Growth Facility (PRGF) arrangement. As a landlocked country in the Sahel region, Mali's economy greatly depends on rainfall conditions and access to the ports of neighboring countries for its foreign trade. This largely explains the significant swings in the level of activities during 2002 and those expected during 2003. The government is particularly concerned by the crisis in Côte d'Ivoire and the effects on Mali's economy of the closing of the Bamako-Abidjan road, which carried about 70 percent of the country's foreign trade. The Malian authorities are working with the other countries in the region to find a peaceful resolution to the conflict, and are taking steps to find alternative ports and avoid major economic disruptions.

2. Notwithstanding the difficult economic environment, the government will continue to pursue its implementation of the poverty reduction policy defined in the poverty reduction strategy paper (PRSP), adopted in May 2002. This will require devising policies and instruments suited to the objective, and implementing appropriate short-and medium-term measures enabling the government to use internal and external resources more efficiently. To attain its poverty reduction objectives, the government will be pursuing economic, financial, and social policies aimed specifically at promoting economic diversification and private sector development.


3. The macroeconomic situation improved noticeably in 2002. Preliminary information indicates that real GDP grew 9.6 percent, compared with 1.5 percent recorded in 2001, and the approximately 5 percent achieved on average per year since the devaluation of the CFA franc in 1994. Strong growth during 2002 came mainly from three sectors. First, cotton production more than doubled after the producer price was raised from CFAF 175 per kilogram to CFAF 200 per kilogram and sector reforms took effect. Second, cereal production increased by 10 percent during the 2001/02 crop year, thanks to adequate rainfall. And finally, instead of declining as expected, gold production increased by 17 percent following the discovery of new deposits in one of the mines. However, the closing of the Bamako-Abidjan road since September and the need to redirect foreign trade to other more distant and more expensive ports have led to a slowdown of activity in some sectors, increased costs, and supply shortages.

4. Supply difficulties and a decrease in agricultural production during the 2002/03 crop year—caused by inadequate rainfall—kept the consumer price index at a higher level than expected. Hence, average inflation remained stable at 5 percent in 2002, against a target of 3 percent.

5. As regards the balance of payments, the external current account deficit (excluding official transfers) declined from 14.2 percent of GDP in 2001 to 10.7 percent in 2002, an improvement exceeding the program target. Thanks to increased gold exports, the volume of exports rose by 24.5 percent in 2002, instead of the expected 16.4 percent, even though the cotton company, CMDT, was unable to ship one-fourth of the cotton production it had sold because of the closing of the Abidjan-Bamako road. The growth in the volume of imports is estimated to have been somewhat less than real GDP growth. The deterioration in the terms of trade was less severe than expected because the price of cotton rose slightly and the price of gold held steady on international markets. In addition, the good performance of the mining companies translated into payment of high dividends to nonresident investors and a worsening of the deficit in the income balance, which is estimated at 6.0 percent of GDP. The overall balance of payments posted a large surplus; this outcome was due to the improvement in the current account balance, as well as to substantial capital inflows resulting from the sale to a foreign firm of a license to operate a telephone network, investments in the mining companies, and the sustained flow of foreign aid, albeit at a lower level than expected.

6. As regards fiscal policy, the government ensured that the quarterly targets for the basic balance and the overall fiscal balance were met. At end-September 2002, the overall fiscal balance (excluding grants) reached 8.1 percent of GDP (annualized) rather than the 10.3 percent estimated in the program. The improvement is due to higher-than-expected receipts, especially from the taxation of petroleum products, and a large distribution of dividends by the mining companies. Expenditures were less than programmed, thanks to prudent budget implementation. Despite weak budget support (CFAF 21.2 billion, instead of CFAF 34.9 billion assumed in the program), the fiscal deficit was financed without recourse to the banking system, since the government received the proceeds from the sale of a license for operating a telephone network (thereby realizing CFAF 29.2 billion instead of CFAF 11.0 billion assumed in the program).

7. After the crisis in Côte d'Ivoire broke out in September 2002, the authorities took steps to limit the overall deficit (excluding grants) to about 10 percent of GDP in 2002, instead of the programmed 10.3 percent. Preliminary information indicates that a shortfall in fiscal revenue equivalent to 0.8 percentage point of initial GDP may be at least partly offset by a larger-than-expected distribution of dividends by the mining companies, which were partially reimbursed for payments of the value-added tax. The government also reduced non-poverty-related spending by 0.4 percent of GDP.

8. Faced with lower budget assistance than expected (CFAF 48.4 billion, instead of the CFAF 61.8 billion expected under the program), the government covered the deficit with higher-than-expected privatization receipts. Preliminary information suggests that, overall, net domestic financing of the fiscal deficit, adjusted for the shortfall in foreign financial assistance, remained within the limits set in the program.

9. Monetary developments during the first nine months of 2002 included a rapid increase in the net foreign assets of the Central Bank of West African States (BCEAO) and a sizable expansion in net domestic assets. Credit to the economy increased by 21.0 percent over the 12 months to September 2002, an increase partly offset by a slight decrease in net credit to the government. In April 2002, in response to the increase in the consumer price index, the BCEAO decided to increase the reserve requirement ratio from 3 percent to 9 percent, in order to absorb the excess reserves of commercial banks.

10. The quality of bank portfolios has largely remained unchanged during the first eleven months of 2002. The ratio of nonperforming loans to net credit to the economy rose from 10.1 percent in December 2001 to 10.4 percent at the end of November 2002. A number of these nonperforming loans are explained by the delayed repayment of loans connected with the African Cup of Nations (CAN) and the downgrading of certain claims following the merger of two banks. In addition, a number of banks are not in compliance with all prudential ratios. Microfinance institutions recorded significant growth in deposits and loans, and the government launched an action plan to encourage them to cover economically underprivileged areas.

11. The government continued to implement the structural reforms included in the program. In the cotton sector, the authorities adopted a mechanism in July 2002 for setting the producer price for seed cotton based on movements in international cotton fiber prices and taking account of producer prices prevailing in the region. The new mechanism, which was partly used during the 2001/02 crop year, will enter into full force before the end of May 2003 for the 2003/04 crop year. On September 30, the authorities launched the tender offer for the sale by the cotton company (CMDT) and the Office de la Haute Vallée du Niger (OHVN) of the assets needed to establish a new private sector operator in the OHVN/Kita zone. The successful bidders were requested to make financial offers on January 6, 2003. The interim report of the study on the stages and options for liberalizing the cotton sector was submitted to the cotton sector restructuring mission in October 2002. It was discussed by the steering committee on November 20 and is being examined by the World Bank before being submitted to the government.

12. In order to improve public expenditure management, the government has implemented the main recommendations of the Report on the Observance of Standards and Codes (ROSC), and of the Report on Procedures for Tracking Poverty-Reducing Expenditures, which was prepared in July 2001. With Fund technical assistance, the Budget Directorate completed a study for a new budget nomenclature, which, in addition to the usual economic and functional classification, will use specific codes to identify poverty-reducing expenditure and outlays financed with resources related to the Initiative for Heavily Indebted Poor Countries (HIPC Initiative). While the 2003 budget law was enacted based on the current nomenclature, the actual execution of the 2003 budget will be based on both nomenclatures. In addition, the government approved the draft budget audit law for 2000 in June 2002 and the draft budget audit law for 2001 in December 2002. In August 2002, the government appointed six magistrates to the accounts section of the Supreme Court. A draft law concerning the establishment of an Audit Office (Cour des comptes) has been presented to the government. This will further strengthen the system of ex post audits of government accounts and eliminate lags in this area. Also, based on a preliminary inventory of the government's domestic liabilities completed in October 2002, disputed claims are now being verified. Finally, as a result of the government's action plan for reforming the civil service adopted in April 2002, the National Assembly enacted the revised civil service statute in November 2002.

13. The implementation of the privatization program during 2002 included the sale in August of a second telephone license for CFAF 29.2 billion. With World Bank assistance, the government also decided to proceed with the sale of 84 percent of its shares in HUICOMA, a company that produces cotton seed oil, and the tender offer was launched in December 2002. In addition, the two successive tender offers for the concession contract of the railroad (RCFM), which were issued in May and July 2002, were deemed unsuccessful. Nevertheless, with the support of World Bank staff, the authorities, together with the government of Senegal, have reopened discussions with the two groups of enterprises that participated in the tender offer and are seeking an agreement by end-March 2003, given the importance of quickly improving access to the port of Dakar.

14. Overall, the implementation of the government program that the International Monetary Fund supports has been satisfactory. As shown in Table 1, the quantitative performance criteria for end-June and the quantitative benchmarks for end-September were met. All the structural performance criteria for 2002 were observed, whereas the benchmark concerning the preparation of a comprehensive list of government liabilities vis-à-vis the rest of the economy was satisfied at end-November 2002 and the benchmark concerning the next steps in the cotton sector reform will be ready in June 2003, rather than at the end of November 2002, as planned.


15. The government has decided to revise the macroeconomic framework presented in the PRSP to reflect the unfavorable growth prospects for 2003 and the uncertainties created by the crisis in Côte d'Ivoire. The government intends to continue implementing policies and taking steps necessary for achieving its medium-term poverty-reduction targets, and to redirect public spending toward health, education, rural development, and infrastructure. The revised framework is based on the assumption that the effects of the closing of Bamako-Abidjan road will fade gradually during the second quarter of 2003, and economic activities will return to their usual level during the second half of the year. Should this assumption need to be revised, the authorities would contact Fund staff to discuss changes to be made to the framework.

16. Real GDP is projected to fall by 0.4 percent in 2003, for the reasons stated in paragraph 17, before rebounding and attaining an average growth rate 6 percent in 2004-05. Increased transportation costs and supply problems would keep inflation at about 5 percent in 2003, before it returns to 2.5 percent per year in 2004-05. To accomplish this, the government will ensure that prices are set freely and will promote competition in the transportation sector.

17. Real GDP is projected to decline during 2003 mainly because of a fall in cereal and cotton production, due to inadequate rainfall. The decline in cotton production may also result from increases in the prices of pesticides and fertilizers. Gold production is expected to fall in 2003 from the exceptionally high level achieved in 2002. Under the program assumptions, the closing of the Bamako-Abidjan road during the first quarter of 2003 is estimated to dampen growth by about ½ of 1 percent, with the most severe impact on the secondary sector.

18. As regards the balance of payments, the volume of exports is expected to fall by 5.8 percent in 2003, owing to lower cotton and gold production (despite the shipment of the large stock of cotton that remained at end-2002). The current account deficit would widen by 0.5 percentage point of GDP to 11.2 percent. This deficit would be financed by private capital inflows and foreign aid, and possibly by a small reduction in international reserves. To finance the public investment program, the authorities will continue to rely solely on grants and concessional loans.

19. Given the importance of regional integration for a landlocked country, the government will take all steps needed to ensure strict compliance with the West African Economic and Monetary Union (WAEMU) convergence criteria. To this end, the government intends to reduce its financing requirement and to implement a rigorous fiscal policy and a cautious borrowing policy.


20. Fiscal policy in 2003 will reflect the poverty reduction targets that the government defined in the PRSP. This policy aims at increasing poverty-reducing expenditures while lowering the basic fiscal deficit. The government's objective for 2003 is to turn the basic fiscal deficit (excluding HIPC Initiative spending), estimated at 0.4 percent of GDP in 2002, into a surplus equivalent to 0.7 percent of GDP, in line with the WAEMU convergence criteria. Accordingly, the overall budget balance deficit (on a commitment basis and excluding grants) will decrease from 9.9 percent of GDP in 2002 to 8.3 percent in 2003. In order to keep overall government spending at about 27.4 percent of GDP, the authorities intend to increase total government revenue by 1.9 percentage points of GDP to 19.1 percent in 2003, with tax revenue rising by 1.6 percentage points of GDP to 15.8 percent. About one-third of the improvement is expected to be due to a recovery in tax receipts once the crisis in Côte d'Ivoire has ended. In addition, the government has decided to take the following specific measures:

  • Increase the domestic tax on petroleum products by February 2003, as required, to reach the revenue target of CFAF 80 billion.

  • Adopt a simplified tax system for taxpayers with turnover ranging between CFAF 30 million and CFAF 100 million.

  • Harmonize the corporate income tax rate at 35 percent.

21. The authorities expect the WAEMU Commission to accelerate the compensatory payments owed for the loss of revenue resulting from the implementation of the common external tariff. Moreover, the establishment of a branch of the Banque Africaine pour le Développement et le Commerce (BADC) and the ending of the exemptions granted to the Banque Nationale de Développement Agricole (BNDA) are expected to increase receipts from the tax on financial transactions by CFAF 2.1 billion. All these measures, together with the effect over a full year of the increase in revenue stamp rates and the arrival in the market of a second mobile telephone provider, should help increase tax revenue by about 1.2 percentage points of GDP. Initiatives to increase the efficiency of tax administration will include a computerized survey of enterprises to incorporate the informal sector in the tax base, improved training for tax collection and assessment agents, and the installation of a new computer system in the Customs Department, which will connect it to the Treasury and Tax Department. The Treasury will also set up a special collection agency responsible for the largest taxpayers. In addition, the government will undertake an evaluation of the land tenure system for government-owned land during the first half of 2003, and will study the possibility of introducing a fee on unimproved lots in order to increase income from real estate taxes.

22. To reduce shortfalls in the mobilization of domestic resources, the government will ensure the strict application of laws and regulations governing the granting of tax exemptions to businesses, whose cost for 2002 is estimated at more than 1 percent of GDP. Aside from the agreements governing externally financed projects, only companies approved under the investment code or the mining code are eligible for exemptions. As to exemptions on petroleum products, the government will verify consumption by beneficiaries each quarter. In addition, it will strictly apply agreements providing exemptions, eliminate tax exemptions granted to government vehicles and, more generally, intensify antifraud efforts. The government has also requested technical assistance for assessing the effectiveness of the tax reforms implemented in recent years, and for recommending additional measures that would help raise the tax revenue-to-GDP ratio to the WAEMU target of 17 percent. Technical assistance has also been requested to improve the quality of its macroeconomic accounts, particularly the national accounts, and harmonize them with WAEMU criteria.

23. Current expenditures (excluding HIPC Initiative-related expenditures) are projected to decrease slightly to 12.3 percent of GDP in 2003. The decrease is due to a low budget allocation for election expenditures and the discontinuation of the subsidy to the cotton sector. The wage bill is projected to increase by 10.5 percent to CFAF 100 billion, which will allow for the harmonization of the wage scale, a three-year postponement in the average retirement age, and recruitment of new personnel in education (847), health (300), justice (200), and security (300). In order to update the payroll records, the authorities will conduct a physical count of all civil servants, and contractual staff from December 2002 to March 2003. In connection with the government's divestiture of public enterprises, the authorities have planned a budgetary allocation of CFAF 20 billion to finance severance packages for employees who may be laid off. Before end-January 2003, the government will begin to prepare a general framework for severance packages to ensure that the same labor law provisions will apply to all layoffs resulting from the privatization program. Domestically financed capital expenditures will total 3.7 percent of GDP, up from 3.2 percent in 2002.

24. If government revenue is less than expected, the authorities will adjust overall expenditure levels to meet the target of basic balance. However, the government will maintain the level of budget allocations for poverty-reducing expenditures identified under the new budgetary nomenclature. Consistent with the goals of the ten-year program for education (PRODEC) and the ten-year program for health (PRODESS), and those of the basic infrastructure development program, these expenditures, including those financed with HIPC Initiative resources, will increase by 21.7 percent in 2003. HIPC Initiative-related expenditures are expected to reach CFAF 32.5 billion, and procedures will be streamlined to improve resource utilization in the target sectors. In addition, the authorities will prepare, with World Bank assistance, a strategy for using proceeds from privatization, in particular those from the sale of the telephone license. The government will also adopt a strategy to reduce its domestic liabilities by end-February 2003, based on the audit that was recently completed.

25. To finance the overall fiscal deficit, estimated at 4.7 percent of GDP, the government will have recourse to external resources. The external financing will consist solely of borrowings on concessional terms from its bilateral and multilateral partners. This will include CFAF 105.8 billion in the form of project loans. Net domestic financing will be negative, reflecting the government's efforts to reduce its debt to the rest of the economy by CFAF 38.5 billion, while net bank credit to the government would rise by an estimated CFAF 34.0 billion. A residual financing gap remains in the amount of CFAF 48.7 billion, or 2.2 percent of GDP, for which the government has received assurances from its development partners, in particular the African Development Bank (CFAF 19.8 billion), the World Bank (CFAF 16.8 billion), the European Union (CFAF 5.9 billion), and the Netherlands (CFAF 6.3 billion). Once the strategy for the utilization of privatization proceeds has been prepared, the level of net domestic financing will be adjusted to reflect the utilization of the proceeds from the sale of a telephone license in 2002.

26. Reflecting the monetary policy objectives of the BCEAO, which aim at strengthening the regional central bank international reserves and maintaining inflation at a level compatible with that of the anchor currency, broad money is projected to expand by 5.5 percent in 2003. Net credit to the government will increase slightly, while credit to the economy will rise by about 9 percent, which is consistent with the outlook for economic activity. In 2003, the authorities will repay the statutory advances from the BCEAO, according to the schedule agreed by the WAEMU Council of Ministers. To strengthen the financial situation of the banking system, the monetary authorities will ensure that all commercial banks adhere to prudential ratios. The government will continue to promote the sound development of microfinance, in particular by reinforcing the supervisory capacity, recognizing the important role played by those institutions in rural development and the fight against poverty.


27. The structural reform program for 2003 will continue to focus on two key issues: the reform of the cotton sector and the improvement of public expenditure management.

A. The Cotton Sector

28. The objective of the cotton sector reform, which the government has undertaken with the support from World Bank staff, is to increase the cotton sector's contribution to the national economy by opening it up to competition and privatizing the CMDT. After having reduced the CMDT's cost structure and established a new mechanism for setting producer prices in 2001 and 2002, the main measures to be undertaken in 2003 include refocusing the CMDT on its core activities; completing the sale of ginning plants in the OHVN/Kita area; completing the sale of the cottonseed oil company HUICOMA; and adopting an action plan defining the next steps for the restructuring of the sector. The refocusing of the CMDT will consist in withdrawing the company from public service responsibilities and downsizing it accordingly. The government will ensure that the withdrawal plan agreed in April 2002 is effectively implemented. Budget allocations have been provided in the 2003 budget to defray the cost of transferring these responsibilities. The CMDT reviewed its staffing plan in November 2002, and a severance package is being prepared for the personnel who will be laid off. Discussions with CMDT staff representatives also began in November 2002. As noted above, the authorities will ensure that the CMDT's severance package is consistent with the general framework that the government plans to propose for such package.

29. As regards the sale of the ginning plants in the OHVN/Kita area, bidders that were retained after the tender offer of September 2002 were requested to submit financial offers in January 2003, and the sale should be completed during the first half of 2003. To continue the reform of the sector, the authorities, with the assistance of the World Bank, will conduct a poverty and social impact assessment of the options for liberalizing the cotton sector and will adopt a comprehensive action plan by end-June 2003.

B. Public Expenditure Management

30. The Malian authorities are continuing to improve public expenditure management with support from their development partners. The objective is to move gradually from the current approach, which focuses on spending appropriations and the observance of spending procedures and regulations, to an approach that is focused on the effectiveness of expenditures and is, therefore, essentially results oriented. The new approach presupposes that information is well managed, comprehensive, and readily available.

31. Budget monitoring will be facilitated by the introduction of a new budget nomenclature that identifies poverty reduction expenditures and budgets based on three-year programs. The latter were included in the budget for 2003. In addition, with the assistance of the World Bank, work is well advanced on the preparation of a medium-term expenditure framework for the health and education sectors, and for the application of a harmonized budgetary and accounting nomenclature by local governments. The government also intends to implement an integrated information system for budget execution and public expenditure management by April 2004. This system will make it possible to monitor the different phases of public expenditure from a unified database accessible to all budget managers; hence, it will improve budget management, facilitate controls, and improve public resource management. The authorities will also prepare a monthly table on the consolidated financial operations of government autonomous agencies, including the Caisse de Retraite du Mali (CRM) and the Institut National pour la Prévoyance Sociale (INPS). The table for January 2003 will be available in March 2003.

32. To strengthen control over outlays for water, energy, and telecommunications, a computer program has been implemented to monitor consumption of all government offices. The current agreement defining the relations between the government and the electricity and water company (EDM) will be expanded to include the telecommunications company (SOTELMA), so that bills and payments can be reconciled each quarter.


33. The government began implementing the program presented in the PRSP, which was adopted in May 2002. The government has established a mechanism for monitoring and evaluating the implementation of the PRSP that will provide necessary information to the government, the population, and development partners. This mechanism, which was the subject of a seminar in November 2002, is based on (i) identifying and analyzing financial resource allocations, (ii) monitoring resources and activities relative to the initial plans, (iii) monitoring and measuring the success of activities in meeting targets, (iv) monitoring and measuring the efficiency of the activities undertaken, and (v) analyzing the overall impact of the PRSP, and of each of its priority poverty-reducing actions. Accordingly, the government has adopted performance indicators that cover financial resources and physical outcomes. The authorities will broaden the list of such indicators once additional data are available and will extend their coverage to regions and/or target groups. The government will prepare quarterly report on the current list of indicators. In addition, with the support of development partners, the authorities will regularly commission independent and targeted audits to ensure that the resources intended for poverty alleviation are being properly used.

34. Overall, the results achieved in the education and health sectors at the end of 2002 are consistent with the objectives of PRODEC and PRODESS. Education's share in the government's current expenditure increased from 24.9 percent in 2001 to 25.4 percent in 2002 (excluding HIPC Initiative resources). The share of current resources allocated to health has increased in line with the targets set under PRODESS. HIPC Initiative-related resources allocated to education is estimated at CFAF 14.7 billion, or about 44.2 percent of the total debt relief obtained in 2002. This compares with a 46.0 percent share in 2001. The share of HIPC Initiative resources allocated to health rose from 9.2 percent in 2001 to 14.2 percent in 2002. The authorities will take steps to substantially increase the capacity of health training institutions, and will review incentives in order to improve recruitment of health care personnel for underprivileged areas.

35. The proposed budget for 2003, which is the first to be prepared since the adoption of the PRSP, explicitly reflects the government strategy defined in the PRSP. It includes significant increases in the budget allocations for the social sectors, specifically health and education, which account for 28.6 percent of the total increase in government expenditure in 2003, compared with 29.0 percent in 2002. To safeguard implementation of the PRSP, the government will adopt budget regulations that will protect allocations identified as poverty-reducing, in case of a shortfall in revenue.


36. The following measure constitutes a prior action for concluding the fifth review under the Poverty Reduction and Growth Facility (PRGF): launching of the physical census of all civil service and contractual staff in Bamako.

37. Program implementation will be monitored and evaluated on the basis of the quantitative benchmarks described in detail in Tables 1, 2, and 3 of this memorandum and in the attached technical memorandum of understanding.



Technical Memorandum of Understanding

February 13, 2003

1. This technical memorandum of understanding defines the performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement. It also sets out the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program-monitoring purposes.


2. Unless otherwise indicated, the government is defined as the central administration of the Republic of Mali and does not include local administrations, the central bank, or any other public entity with autonomous legal personality that is not included in the table of government financial operations (TOFE).

3. The definitions of "debt" and "concessional borrowing" for the purposes of this memorandum of understanding are as follows:

(a) As set out in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing, adopted by the Executive Board on August 24, 2000, debt is understood to mean a current—that is, not contingent—liability created under a contractual agreement calling for the provision of value in the form of assets (including currency) or services that requires the obligor to make one or more payments in the form of assets (including currency) or services according to an established repayment schedule; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to the obligor by the lender on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payment until some time after the date on which the goods are delivered or services are provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time, usually shorter than the total expected service life of the property, while the lessor retains title to the property. For the purposes of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the arrangement, excluding those payments that cover the operation, repair, or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are also debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

(b) A loan is considered concessional if, on the date the contract is signed, the ratio of the present value of the loan, based on the reference interest rates, to the nominal value of the loan is less than 65 percent (i.e., a grant element exceeding 35 percent). The reference interest rates used in this assessment are the commercial interest reference rates (CIRRs) established by the Organization for Economic Cooperation and Development (OECD). For debts with a maturity exceeding 15 years, the ten-year reference interest rate published by the OECD is used to calculate the grant element. For shorter maturities, the six-month market reference rate is used.


A. Ceiling on the Net Bank Credit to Government and Net Domestic Financing

Definition—net bank credit to government

4. Net bank credit to government is defined as the balance between government debts and government claims vis-à-vis the central bank and commercial banks. The scope of net bank credit to government is that used by the Central Bank of West African States (BCEAO) and is consistent with established Fund practice in this area. It implies a broader definition of government than that specified in paragraph 2. Government claims include the CFA franc cash balance, postal checking accounts, secured liabilities (obligations cautionnées), and all deposits with the BCEAO and commercial banks of public entities, with the exception of industrial or commercial public institutions (EPICs) and public enterprises, which are excluded from the calculation. Government debts to the banking system include all debts to these same financial institutions. Deposits of the cotton stabilization fund and government securities held outside the Malian banking system are not included in the calculation of net bank credit to government.

5. Net bank credit to government, as defined above, stood at CFAF -18.7 billion at end-December 2001 and CFAF -20.6 billion at end-September 2002.

6. The change in net bank credit to government on the date indicated is defined as the difference between the stock on the date indicated and the stock at the end of the previous year. This change was CFAF 18.7 billion as of December 31, 2001 and CFA -1.9 billion as of September 2002.

Definition—net domestic financing

7. The key quantitative performance criterion is net domestic financing of the government, defined as the sum of (i) net bank credit to government, as defined above, (ii) other government claims and debts vis-à-vis national banking institutions, and (iii) nonbank financing of the government, including, in particular, government bills and bonds held outside national banking institutions and proceeds from the sale of government assets. These receipts are defined as the proceeds from the sale, effectively received by the government during the fiscal year, of all or part of the shares held by the government in privatized enterprises. In the event that payments in respect of these sale transactions are expected to extend beyond the fiscal year, the residual will be included in the calculation of nonbank financing of the government in each of the subsequent years, in accordance with the annual scheduling of the expected payments.

8. Figures on net bank credit to government as calculated by the BCEAO, and on nonbank financing as calculated by the public treasury, are final in the context of the program.

Adjustment factor

9. The ceiling on the change in net bank credit to government and net domestic financing of the government will be adjusted if external budgetary assistance exceeds or falls short of the programmed amount. Budgetary assistance is defined as grants, loans, and debt relief (excluding project loans and grants, IMF resources, and debt relief under the Initiative for Heavily Indebted Poor Countries). The ceiling will be lowered by the amount by which budgetary assistance exceeds the programmed amount. Conversely, the ceiling will be raised by the amount by which budgetary assistance falls short of the programmed amount. These ceilings are set at CFAF 15 billion at end-September 2002; CFAF 25 billion at end-December 2002; and CFAF 15 billion at end-March 2003 and end-June 2003. In the context of the program, cumulative external budgetary assistance (excluding the World Bank disbursements in January 2002) is expected to reach CFAF 43.3 billion on December 31, 2002. For 2003, external budgetary assistance is forecast at CFAF 16.0 billion at end-March, and CFAF 35.2 billion at end-June.

10. The ceiling on the change in net bank credit to government and net domestic financing will be adjusted by the difference between the amount of HIPC Initiative resources programmed and the amount actually spent. If the amount actually spent exceeds (or falls short of) the programmed amount, the ceiling will be reduced (increased) by the difference between the actual amount and the programmed amount.

Performance criteria and benchmarks

11. The ceiling on the cumulative change in net domestic financing is established at CFAF -1.6 billion at December 31, 2002; CFAF 5.5 billion at March 31, 2003, and CFAF -9.5 billion at end-June 2003. The ceiling is a performance criterion at end-December 2002, and benchmarks at end-March 2003, and end-June 2003.

Reporting deadline

12. Provisional data on net bank credit to government position, including a detailed list of the bank account balances of other public entities, will be transmitted on a monthly basis within the four weeks following the end of the month. Final data will be provided within an additional four weeks after the provisional data have been reported.

B. Nonaccumulation of External Public Payments Arrears


13. External payments arrears are defined as the sum of external payments due and unpaid for external liabilities of the government and foreign debt held or guaranteed by the government. The definition of external debt provided in paragraph 3(a) applies here.

Performance criterion

14. Under the program, the government will not accumulate external payments arrears, with the exception of arrears arising from debt under renegotiation or being rescheduled. The performance criterion on the nonaccumulation of external payments arrears will be applied on a continuous basis throughout the program period.

C. Nonaccumulation of Domestic Public Payments Arrears


15. Domestic payments arrears are government expenditures for which payment authorizations have been issued (dépenses ordonnancées)but not paid within 90 days of the date of the payment authorization. Domestic arrears also include expenditure commitments to public enterprises for which payment authorizations have been issued but for which payment has not been made within the same 90-day period.

Performance criterion

16. Under the program, the government will not accumulate domestic payments arrears. This performance criterion will be applied on a continuous basis.

Reporting deadline

17. The government will report to the IMF staff any accumulation of domestic arrears as soon as the 90-day deadline has been reached. Moreover, the government will minimize payment delays and will provide, at the request of IMF staff, data on expenditure commitments, payment orders, and payments.

D. Ceiling on Nonconcessional External Debt with a Maturity of One Year or More Newly Contracted or Guaranteed by the Government and/or Public Enterprises


18. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00)), but also to commitments contracted or guaranteed for which no value has yet been received.

19. The concept of government for the purposes of this performance criterion includes government as defined in paragraph 2, administrative public institutions (EPAs), scientific and/or technical public institutions, professional public institutions, industrial and/or commercial public institutions (EPICs), and local governments.

Performance criterion

20. Starting in January 2002, a ceiling of zero is set for nonconcessional borrowing. This performance criterion is monitored on a continuous basis.

21. The government undertakes not to contract or guarantee external debt with a maturity of one year or more and a grant element of less than 35 percent (calculated using the reference interest rates corresponding to the borrowing currencies provided by the IMF). This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing, adopted by the Executive Board on August 24, 2000, but also to commitments contracted or guaranteed for which no value has yet been received. However, it does not apply to financing granted by the IMF and treasury bills and bonds issued in CFA francs on the West African Economic and Monetary Union (WAEMU) regional market.

Reporting deadline

22. Information on any borrowing (terms and creditors) contracted or guaranteed by the government and/or the above-mentioned public enterprises shall be transmitted each month within four weeks following the end of the month.

E. Ceiling on Short-Term External Debt Newly Contracted or Guaranteed by the Government and/or Public Enterprises


23. The definitions in paragraphs 18 and 19 also apply to this performance criterion.

24. Short-term external debt is debt with a contractual term of less than one year. Import- related credit, CMDT foreign borrowing secured by the proceeds of cotton exports, and debt-relief operations are excluded from this performance criterion. Treasury bills issued in CFA francs on the WAEMU regional market are also excluded.

Performance criterion

25. In the context of the program, the government and public enterprises will not contract, guarantee, or accommodate short-term nonconcessional external debt.

26. This performance criterion is monitored on a continuous basis.


27. The program also includes indicators on government tax revenues, the civil service wage bill, and the basic fiscal balance.

A. Floor for Tax Revenues


28. Government tax revenues are defined as those that figure in the Table on government financial operations (TOFE).

Performance indicators

29. Quantitative performance indicators for tax revenues are set at CFAF 331 billion at December 31, 2002. For 2003, these indicators are set at CFAF 72.7 billion at end-March, and CFAF 163.7 billion at end-June.

Reporting deadline

30. The government shall report tax revenues to IMF staff each month in the context of the TOFE.

B. Ceiling on the Wage Bill


31. The wage bill includes all public expenditure on wages, bonuses, and other benefits or allowances granted civil servants employed by the government, the military, and other security forces, and includes expenditure with respect to special contracts and other permanent or temporary employment with the government. The wage bill excludes, however, wages paid under externally funded projects and transfers to local communities for the payment of teachers' salaries.
Performance indicators

32. The quantitative performance indicators for the wage bill are set at CFAF 89.5 billion at December 31, 2002; CFAF 25.0 billion at end-March 2003, and CFAF 50 billion at end-June 2003.

Reporting deadline

33. The government shall report the wage bill to IMF staff each month in the context of the TOFE.

C. Floor on the Basic Fiscal Balance, Excluding HIPC Initiative-Related Expenditure


34. The basic fiscal balance is defined as the difference between total revenues, excluding grants and privatization receipts, and total expenditure plus net lending, excluding capital expenditure financed by foreign donors and lenders and HIPC Initiative-related expenditures.

Performance indicators

35. The floors for the performance indicators for the basic fiscal balance, excluding HIPC Initiative-related expenditure, are set at CFAF -9.2 billion at December 31, 2002. For 2003, they are set at CFAF -10.8 billion at end-March and CFAF -2.3 billion at end-June.

Reporting deadline

36. The authorities will report provisional data on the basic fiscal balance monthly to IMF staff, in the context of the TOFE. These data will be taken from the balances of treasury accounts for the items that are used to calculate this balance. The final data will be provided as soon as the final balances for these accounts are available, but not later than four weeks after the reporting of the provisional data.


37. Table 2 of the memorandum of economic and financial policies describes the structural measures identified as prior actions, performance criteria, and structural benchmarks for 2002 and 2003. This table provides information regarding the implementation dates for the structural reforms envisaged.

38. Data on the introduction of the structural benchmarks and performance criteria will be sent to Fund staff within two weeks of the date of their scheduled implementation.


A. Government Finances

39. The government will provide IMF staff with the following:

  • The TOFE with a breakdown of fiscal revenue and expenditure, including priority expenditure (health, education, and basic infrastructure), along with a separate report on HIPC Initiative-related expenditure will be provided. The data will be forwarded monthly within six weeks following the end of the previous month for the TOFE, and within twelve weeks for the breakdown of HIPC Initiative-related expenditure.

  • Starting at end-March 2003, disaggregated data (same classification as in the TOFE) for government administrative agencies and special budgets, including the Caisse de Retraite du Mali (CRM) and the Institut National pour la Prévoyance Sociale (INPS) will be provided. The data will than be consolidated with the TOFE. The first data will cover revenue and expenditure for January 2003. The data will be forwarded monthly within eight weeks following the end of the previous month.

  • Quarterly data on the implementation of the public investment program, including a breakdown of the sources of financing will be provided within eight weeks following the end of the quarter).

  • Monthly data on debt service, including a breakdown of principal, interest, and relief obtained under the HIPC Initiative (these data will be transmitted within four weeks following the end of the month).

B. Monetary Sector

40. The government will submit the following each month, within four weeks following the end of the month, unless otherwise indicated:

  • summary accounts of the BCEAO;

  • external assets and liabilities of the BCEAO (within eight weeks);

  • summary accounts of the banks;

  • summary accounts of the banking system;

  • lending and deposit interest rates, and the BCEAO's intervention rates and reserve requirements; and

  • prudential ratios for bank and nonbank financial institutions (within six weeks), and, if necessary, these same indicators for individual institutions.

C. Balance of Payments

41. The government will provide IMF staff with the following:

  • any revisions of the balance of payments data (including services, private transfers, official transfers, and capital transactions) as soon as the revisions are made; and

  • preliminary annual balance of payments data within 12 months of the end of the year concerned.

D. Real Sector

42. The government will provide IMF staff with the following:

  • the harmonized monthly consumer price index disaggregated by category of consumption, every month within two weeks after the end of the month;

  • the national accounts, within nine months after the end of the year; and

  • any revision of the national accounts.

43. To monitor the government's progress in achieving the physical objectives of the strategy, the government will provide IMF staff with the following:

  • The share of poverty-reducing expenditure (commitment and cash basis) in the total of budgetary outlays will be provided, with its breakdown among the different social sectors and ministries and also its breakdown among the different regions of the country. This information will be retrieved using the newly adopted extended budget classification.

  • Quarterly data on the share of primary education outlays in total outlays of the education sector to be forwarded within four weeks following the end of the previous quarter.

  • Annual data on the gross enrollment ratio in primary education, with its breakdown between girls and boys will be made available. A preliminary estimate would be made available within two months following the end of the academic year, and final data within one month after the beginning of the next academic year.

  • Annual data on the percentage of the population having access to health care facilities within a radius of 15 kilometers will be submitted within two months following the end of year.

  • Annual data on the rate of assisted births will be submitted within two months following the end of year.

  • Annual data on the DTCP3 immunization rate for children below 1 year will be submitted within two months following the end of year.