Mali and the IMF

Press Release: IMF Approves US$13.7 Million PRGF Arrangement for Mali
June 23, 2004

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

Bamako, May 20, 2004

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.

Mrs. Anne Krueger
Acting Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mrs. Krueger:

1. Following the devaluation of the CFA franc in 1994, the government of Mali has implemented successive programs of economic and structural reforms to accelerate growth and reduce poverty. In support of the programs, the IMF Executive Board approved arrangements under the Poverty Reduction and Growth Facility (PRGF). The last arrangement expired in August 2004, after all scheduled disbursements had been made.

2. The ex post assessment of Mali's performance under the programs supported by the IMF indicates that Mali implemented the successive programs satisfactorily. The programs, together with the devaluation of the CFA franc in 1994, led to an acceleration of growth, continuing low inflation, a strengthening of public finances, and progress in reforming the economy. Nevertheless, many challenges remain for Mali to achieve the Millennium Development Goals.

3. To consolidate the progress achieved to date and set the stage for strong, sustainable, and poverty-reducing economic growth, the government of Mali adopted the poverty reduction strategy paper (PRSP) in May 2002, which has become the framework for economic policies and development partners' support. The PRSP is therefore the basis for the program of economic reforms covering the period April 1, 2004 - March 31, 2007, that is described in the attached memorandum of economic and financial policies. The memorandum also highlights the specific objectives and strategies that the government intends to pursue over the period April 2004 - March 2005.

4. In support of the implementation of its program, the government requests a new three-year arrangement under the PRGF in an amount equivalent to SDR 9.33 million (or 10.0 percent of the quota) and, for the first year under this facility, an amount equivalent to SDR 2.666 (2.86 percent of quota).

5. Mali is highly vulnerable to external shocks such as a sharp drop in the price of cotton on the world market. The government of Mali would be grateful if the IMF would indicate its willingness to consider increasing access under the PRGF arrangement at the first or subsequent reviews, should a need arise as a result of unexpected shocks to the balance of payments.

6. The government of Mali believes that the policies and measures set forth in the attached memorandum will enable it to achieve its program objectives and it is ready to adopt any additional measures that may prove necessary to this end. In that regard, the government of Mali is prepared to consult with the Managing Director of the Fund on the adoption of any measures deemed appropriate, either at its own initiative or at your request. Moreover, as long as Mali has outstanding financial obligations to the Fund arising from loans obtained under this arrangement, the government will consult with the IMF periodically on its economic and financial policies, at the government's initiative or whenever you request such consultations. The government of Mali will also communicate to the Fund all information needed to assess the progress made in implementing its economic and financial policies and in achieving the program objectives.

7. In any event, the Fund and the government of Mali will undertake a first review of the 2004/05 program, which will be completed no later than end-November 2004, and a second review by end-May 2005.

8. To facilitate a wide dissemination of the memorandum of economic and financial policies, the government of Mali authorizes you to publish it, as well as the related staff report, including on the IMF Internet site.

Sincerely yours

Abou-Bakar Traoré
Minister of Economy and Finance

Memorandum of Economic and Financial Policies, 2004-07

I. Introduction

1. This memorandum sets out the macroeconomic and structural policies and objectives of the government of Mali for 2004-07, for which the authorities seek the support of the International Monetary Fund (IMF) under a new arrangement under the poverty reduction and growth facility (PRGF). The memorandum is consistent with the poverty reduction strategy paper (PRSP) adopted by the government in May 2002, and the first annual report of implementation thereunder, which have as their main objective Mali's progress toward the Millennium Development Goals (MDGs).

2. The most recent PRGF arrangement ended in August 2003, following the completion of the sixth and final review. Following the ex post assessment of Mali's economic performance during IMF-supported programs, the Malian authorities requested a new arrangement under the PRGF to help them to finalize the reform program under way and implement the PRSP.

II. Macroeconomic Situation and Program Implementation in 2003

3. The economic situation improved considerably in 2003, due to very favorable rainfall and adherence to prudent macroeconomic policies, which helped to offset the negative impact of the crisis in Côte d'Ivoire. Agricultural production is estimated to have risen by 32 percent, resulting in real GDP growth of 6 percent in 2003, following growth of 4.3 percent in 2002. Seed cotton production in particular increased by 38.4 percent, reaching a new record of 612,000 metric tons, after producer prices had been raised from CFAF 180 to CFAF 200 per kilogram. The combined effects of an increase in the supply of cereal products and a reduction in telecommunications, water, and energy prices led to an average decline in the consumer price index of 1.3 percent during 2003.

4. With regard to the balance of payments, the external current account deficit, excluding official transfers, is estimated to have deteriorated from 4.3 percent of GDP in 2002 to 6.5 percent in 2003. Export volumes declined by 10.4 percent in 2003, due to lower gold production and problems in shipping cotton that had already been sold. The increase in import volumes remained in line with real GDP growth. In addition, the terms of trade improved slightly, owing to the increase in gold and cotton prices. The overall balance of payments position was in surplus, given the continued high level of foreign aid.

5. The government met its fiscal targets for 2003. The overall deficit, on a payment order basis and excluding grants, was reduced by 2.2 percent of GDP to 5.1 percent of GDP, compared with a forecast of 8.3 percent. The basic fiscal deficit was 0.2 percent of GDP and was financed with external budget assistance and resources obtained under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative). Thus, the government was able to service its foreign debt and reduced its domestic liabilities by 1.5 percent of GDP.

6. Total government revenue increased by 13.7 percent, reaching 16.6 percent of GDP. This reflected improvements in the quality and intensity of tax audits, as well as the implementation of such measures as (i) the harmonization of profit tax rates, (ii) the computerization of records of taxpayers in the informal sector, and (iii) the introduction of new rates for stamp taxes. The good performance in the mining sector led to an increase in its contribution to government revenue, which represented 15.8 percent of total revenue.

7. Total expenditure and net lending fell by 1.5 percent of GDP to 21.7 percent in 2003, mainly because of a lower level of implementation of the public investment program, particularly in the health sector. Current expenditures were kept under control, and, in particular, the ceiling on the government wage bill was observed.

8. Monetary trends in 2003 reflect a sharp increase in the net foreign assets of monetary institutions (CFAF 116 billion) and a growth of 21.3 percent in broad money. Credit to the economy rose by 17.4 percent during the year, essentially to finance the cotton sector, whereas net lending to the government fell by 7.3 percent of beginning-of-period broad money. The quality of banks' loan portfolios improved slightly, with the ratio of net nonperforming loans to credit to the economy declining by 0.8 percentage point to 8.4 percent during 2003. Banks generally comply with the main West African Economic and Monetary Union (WAEMU) prudential ratios, with the exception of the limit on loan concentration, which four banks did not satisfy owing to the structure of the economy.

9. The government has continued to implement the structural reform program. In the cotton sector, the Compagnie Malienne pour le Développement des Textiles (CMDT) cut its workforce by one-fourth and agreed to a severance pay package partially financed through the national budget. The government also decided to split the CMDT into three or four private firms by 2006, and in November 2003 it adopted a timetable of actions to be undertaken to that end, as explained below. In March 2004, the authorities announced that they had broken off talks with the successful bidder for the privatization of the cottonseed-oil-producing company (HUICOMA) because guarantees proposed by the bidder were inadequate. In agreement with its commitments, the government will relaunch the privatization process under conditions to be defined with the development partners concerned, notably the World Bank. In other sectors of the economy, the authorities awarded a concession to operate the Malian Railway Company (Régie du Chemin de Fer du Mali, RCFM), and the concessionaire began its activities on October 1, 2003. Moreover, negotiations are under way with the successful bidder for the concession to operate the Malian Airport Company (Aéroports du Mali).

10. Public expenditure management has been strengthened significantly with technical assistance from the IMF and other development partners. The new budget classification system has resulted in greater transparency in government expenditure, together with better identification of social spending, poverty reduction, and HIPC Initiative-financed expenditures. It has also improved the consistency between the budget classification system and the government chart of accounts. A new manual harmonizes procedures for the execution, monitoring, and control of the government budget, while an official price list will help avoid overinvoicing. Training seminars were organized for the personnel of government financial departments to learn these procedures.

11. As mentioned in the report on the first-year implementation of the PRSP, important steps have been taken toward reducing poverty in Mali. Substantial progress was made in increasing basic education enrollment and narrowing the gap between girls and boys; however, wide gaps still exist among regions. However, due to limited human resources and the large disparity between financial needs and budget appropriations, it appears that it will be difficult to reach some of the MDGs by 2015. In particular, results are mixed in the area of health, and steps are being taken both to increase the reliability of statistics needed to measure progress and to improve health coverage. Despite the existence of 624 community health centers, the health care system suffers from insufficient human and material resources at the national and regional levels, in terms both of quantity and of quality.

III. The Medium-Term Macroeconomic Framework

12. The government plans to continue implementing the PRSP, the sole frame of reference for medium-term polices and strategies. To attain the main objective of strong sustainable growth that reduces poverty, the government's strategy is to maintain a stable macroeconomic environment and to pursue structural reforms based on the three priority areas identified in the PRSP: (i) institutional development and improved governance and participation; (ii) human development and expanded access to basic social services; and (iii) infrastructure development and support for the productive sectors. These reforms aim at deregulating and diversifying the economy, based on the development of the private sector.

13. Following the assessment of the first year of PRSP implementation, the macroeconomic objectives for 2004-07 are as follows: an annual real GDP growth rate of over 5 percent on average; annual inflation of less than 3 percent; and a current account deficit (excluding official transfers) of less than 7 percent of GDP.

A. Fiscal Policy

14. Fiscal policy seeks to maintain a stable macroeconomic framework and increase government resources for poverty reduction, while taking into account the need to develop the private sector. To this end, the government intends to limit the budget deficit, on a payment order basis and excluding grants, to less than 7 percent in the medium term. With regard to government revenue, the tax base will be expanded by reducing exemptions, strengthening tax administration, and gaining better control over the tax base; in particular, a property tax system will be developed. These measures should bring the ratio of tax revenues to GDP closer to the relevant WAEMU convergence criterion.

15. The management and prioritization of public expenditure will be improved. This will provide scope for increasing the allocation of public funds toward priority programs set out in the PRSP. Wage policy will aim to contain the wage bill of government, broadly defined, to less than 5 percent of GDP, while enhancing the performance of public administration and remaining compatible with recruitment needs in the social sectors and with other fiscal objectives. In addition, the government will ensure that local governments have the resources they need to accomplish the tasks devolved to them. This will be done through the transfer of human and financial resources from the central budget and through development of a tax system at the local level. This process will be accompanied by the decentralization and downsizing of the central administration.

16. The government will continue to improve procedures for designing, executing, and monitoring budget operations, and will strengthen controls and audits in order to improve governance and the quality of public spending. To optimize external financial support, the government hopes that bilateral and multilateral development partners can commit themselves to providing assistance in the form of budgetary support, notably for project financing. The use of a common set of procedures would have the advantage of improving absorptive capacity and raising the loan disbursement rate.

B. Monetary Policy and Financial System Reform

17. Monetary stability will be maintained in the context of the monetary policy of the Central Bank of West African States (BCEAO). In this regard, the monetary authorities will endeavor to keep inflation at less than 3 percent, consistent with the parity of the CFA franc with the euro.

18. The government will pursue financial sector reform under the Financial Sector Development Project (FSDP) to improve the viability, performance, and competitiveness of the financial system as a whole. The measures planned are as follows: (i) complete divestiture of the equity interest of the government and its various branches in the commercial banks, Banque Internationale pour le Mali (BIM), Banque de Développement du Mali (BDM), and Banque Commerciale du Sahel (BCS); (ii) continue discussions at a regional level on the withdrawal of the BCEAO from the equity of banks; (iii) improve the implementation of the banking commission's recommendations to ensure commercial banks' compliance with all the prudential ratios; (iv) continue the review of the legal and regulatory framework of the financial system; (v) increase the number and improve the training of the personnel of the judicial system so as to improve bank debt recovery; and (vi) create land registries for urban and mining areas to enable real property to be more broadly used as bank collateral.

19. For nonbank financial institutions, the key measures are (i) restructuring the social welfare institutions— the National Social Security Institute (Institut National de Prévoyance Sociale-INPS, and the Civil Service Retirement Fund (Caisse de Retraites du Mali-CRM)— so as to restore their financial viability over the medium term; (ii) strengthening the regulatory framework and capacity of the insurance sector; and (iii) improving the capabilities for supervising and monitoring the microfinance sector.

C. Structural Policy

20. The objective of structural policy is to achieve strong and sustainable growth by improving the ability of the economy to withstand exogenous shocks and by increasing its flexibility. This policy will be based on the analysis of the growth potential of the key sectors of the economy and their impact on poverty reduction. It will also draw on the recommendations of the study on the integrated framework for trade. The main elements of the strategy are to enhance competitiveness and increase diversification in the economy, thereby creating an environment that is favorable for the development of the private sector.

21. To achieve these objectives, structural reforms will be pursued more intensively on several fronts. The priorities are to (i) simplify administrative procedures, including through the introduction of a unique identifying number for enterprises; (ii) establish a regulatory and tax framework that is fair, transparent, simple, and stable, in order to promote development of the private sector; (iii) continue to improve the judicial system; (iv) comply with regional legislation on indirect taxation and support for investments; (v) pursue the liberalization of the economy, including in the cotton sector; and (vi) improve the coverage and efficiency of the basic infrastructure of the economy. In this context, the government will seek to accelerate the development of the transport sector, as well as expand the water and electricity distribution networks. Furthermore, the Water and Electricity Regulatory Commission (Commission de Régulation de l'Eau et de l'Électricité-CREE ) will ensure that the rate structure of public utilities is compatible with the viability of the enterprises providing these services and consistent with the financing and development needs of these sectors.

22. The development of skilled human resources is a priority in the government's strategy. The government intends to pursue ambitious reforms in the education and health sectors, especially with the ten-year development programs for education (PRODEC) and for health and welfare (PRODESS). Vocational education will also be developed, as well as continuing education programs, so as to alleviate recruitment problems. These actions will be accompanied by a reduction of labor market constraints and measures to ensure that the pay structure offers a sufficient incentive for investment in education and training.

23. In order to increase the role of the private sector as a driving force for development, the government will push ahead with its privatization program, with special emphasis on the key sectors of cotton and telecommunications. In addition, the government will finalize negotiations on the granting of a concession to operate the Malian Airport Company (Aéroports du Mali), complete the privatization of the Malian Pharmaceutical Company (Usine Malienne de Produits Pharmaceutiques-UMPP), and reduce to 20 percent the government's equity interest in the sugar company (SUKALA SA) and the river transport company (COMANAV).

D. Debt Sustainability

24. Mali reached the completion point under the enhanced HIPC Initiative in March 2003, thereby enabling it, in particular, to reduce its net present value (NPV) of external debt below the threshold of 150 percent of exports of goods and services. However, if current trends are maintained, macroeconomic projections show that the ratio of NPV of debt to exports may rise to near the sustainability threshold by 2015. Hence, in order to maintain debt sustainability, the government will aim to diversify the economy in order to increase exports; it will ensure that any new debt is on concessional terms, and it will favor grants over loans for financing its investment needs. In particular, it will seek to increase the share of grants in external financing from 40 percent currently to 60 percent over the medium term. Furthermore, in the context of its fiscal policy and as mentioned above, the government will strengthen the mobilization of domestic resources.

E. Improvement of Economic Statistics

25. The government will continue to improve the reliability of economic statistics with the support of the International Monetary Fund, including the West Africa Regional Technical Assistance Center (West AFRITAC), and other development partners. In particular, budget appropriations for the National Statistics Agency will be increased sufficiently in 2005 to enable it to conduct the surveys needed for the preparation of an industrial production index, the national consumer price index, and various basic statistics to improve the national accounts. Moreover, to strengthen statistics on the mining sector, the government, together with the mining companies and other partners, will seek to improve information on actual and projected production, sales, and payments through offshore accounts—whose scope or existence could be subject to review.

IV. Program for 2004

26. In the context of the medium-term policies and objectives described above, the macroeconomic outlook for 2004 is for real GDP to grow by 4.7 percent, inflation to average 2.5 percent, and the external current account deficit, excluding official transfers, to remain below 7 percent of GDP.

27. To facilitate the implementation of the program, by the end of April 2004 the government will set up a unit in the Ministry of Economy and Finance to monitor the macroeconomic program. The Secretary of the unit will also run the Secretariat of the Interministerial Committee, which is responsible for monitoring macroeconomic policies. In addition, this unit will consolidate and disseminate financial and macroeconomic information on a regular basis. In this regard, the Ministry of Economy and Finance is studying the possibility of creating a website to publish this information.

A. Fiscal Policy

28. The objective of fiscal policy is to restrict the overall deficit of government financial operations to a level that is compatible with macroeconomic stability, including debt sustainability, and to respond better to the needs of priority sectors. To this end, the efficiency of tax and customs administration and of public expenditure management will be strengthened. The overall budget deficit, on a payment order basis and excluding grants, is expected to be contained at 7.5 percent of GDP in 2004, or an increase of about 2.4 percent of GDP compared with 2003. This increase mainly reflects a higher execution rate of the public investment program, following measures taken to strengthen the management of projects (see below).

29. The budget deficit will be financed by foreign financial assistance, including resources obtained in the context of the enhanced HIPC Initiative. The financing gap before financial assistance is CFAF 76 billion, of which CFAF 19.5 billion has already been mobilized. In the event that the level of mobilized resources is too low to cover the gap, the government intends to issue bonds in order to refinance part of its domestic debt falling due in 2004. If this were to be insufficient, the government would discuss with the IMF additional measures that would need to be taken.

30. Total government revenue will amount to 17.0 percent of GDP, compared with 16.6 percent in 2003. As specific tax measures, the government will (i) increase the domestic tax rate on petroleum products; and (ii) introduce a simplified arrangement for enterprises with turnover of between CFAF 30 million and CFAF 100 million by May 2004. The government is also implementing a number of measures to strengthen tax and customs administration. For instance, the first phase of the upgrading of the computerization system has been achieved; a joint computerized database for the tax and customs departments will become operational in June 2004; the import verification program will be better used to cross-check information on imports; border inspections of sensitive products such as tobacco, matches, and flour will be improved; customs will set up a one-stop window in Bamako to clear car imports; and the staffing and training of tax inspectors and auditors will be strengthened. A particular effort will also be made to continue improving relations between tax services and taxpayers.

31. The government will limit exemptions to those provided for under the agreements for externally financed investment projects, international and regional conventions, the investment code, and the mining code. It will also submit a draft law by end-June 2004 calling for the abolition of exemptions granted to the Banque Nationale de Développement Agricole (BNDA) to the National Assembly.

32. Total government expenditure will rise from 21.7 percent of GDP in 2003 to 24.5 percent in 2004. This increase primarily reflects the improvement in the implementation of investment projects, a higher level of transfers due to the growing deficit of the Caisse de Retraite du Mali, and the financing of the 2004 local elections. Spending on poverty reduction will amount to 59.7 percent of total expenditure.

33. The wage bill will be limited to CFAF 122 billion, or 4.5 percent of GDP. This amount includes civil service salaries and contractual employees' pay, including those financed with HIPC Initiative resources. The increase in the wage bill reflects the harmonization of the wage scale and the new hires planned in the 2004 budget. By end-September 2004, the government will complete a study on allowances and bonuses, with a view to simplifying them, containing their cost, and improving their transparency. Recruitment policies will be consistent with priorities in the areas of education, health, and justice, including the recruitment of 1,452 permanent staff and 4,073 contractual staff (financed with HIPC Initiative resources), for a total cost of CFAF 4 billion. For other ministries, recruitment will be limited to 500 employees, at a total cost of CFAF 500 million. In addition, by the end of April 2004, the government will remove from the civil service staffing list and payroll any government employees and contractual staff who did not take part in the February 2003 census or in the physical audit organized in November 2003.

34. Budget subsidies and transfers are estimated at CFAF 87.0 billion, or 3.2 percent of GDP in 2004. They include subsidies to the CRM (CFAF 17.7 billion) and industrial enterprises (CFAF 9.3 billion), as well as severance packages that may be granted in the context of the privatizations to be completed in 2004. In addition, to ensure that public resources are well utilized, the government will audit expenditures financed with HIPC Initiative resources by end-May 2004, and it will review criteria used in disbursing funds allocated to the social safety net by end-June 2004.

35. To ensure the sustainability of its debt, the government will improve the impact analyses. Consequently, the government will set up a national committee for monitoring public debt sustainability; the committee will be responsible for issuing an obligatory opinion on any new plan by the government or its branches to raise new foreign or domestic debt.

B. Monetary Position and Financial System Reform

36. In accordance with the BCEAO's monetary policy objectives, the money supply is projected to expand by 9.6 percent in 2004, in line with growth in nominal GDP. Credit to the government is expected to increase slightly, and credit to the economy should rise by 9.1 percent.

37. The financial system reform in 2004 comprises three components: (i) restructuring and privatizing the banking sector; (ii) strengthening nonbank financial institutions; and (iii) strengthening the microfinance sector.

38. The specific measures planned for banking sector restructuring and privatization are as follows: (i) end the provisional administration of BIM and establish normal management structures for BIM by end-April 2004; (ii) approve a strategy and timetable for the privatization of BIM by end-September 2004, so that the bidding process can be launched by March 2005; (iii) appoint auditors to assess the value of the shares of BDM and BCS by end-September 2004, with a view to completing the divestiture of the equity interest of the government and its branches in those institutions in 2005; (iv) finalize the capital increase for BHM in conformity with the recommendations of the feasibility study; and (v) support the implementation of the banking commission recommendations.

39. As for strengthening nonbank financial institutions, the measures envisaged are as follows: (i) submit a draft law updating the legislation governing the CRM to the Council of Ministers by end-July 2004; (ii) prepare the 2003 financial accounts for the CRM and the INPS, to be approved by the statutory auditors by end-June 2004; and (iii) prepare a preliminary report of the CRM's position, begin actuarial studies on the fund, and audit the files on INPS contributions and beneficiaries by end-2004.

40. Recognizing its importance to the economy, the government will continue to promote the development of the microfinance sector. The measures envisaged are to (i) strengthen the supervisory capability of the Decentralized Financial Systems Support and Monitoring Unit (CAS/SFD); and (ii) assess the legal framework for microfinance in Mali, with a view to suggesting improvements to the relevant legislation in this area.

C. Structural Reforms

41. The structural reform program for 2004 will focus on the reform of the financial system mentioned above and the following key areas: continuing the privatization program, reforming the cotton sector, improving public expenditure management, and continuing the devolution/decentralization program.

42. The privatization program for 2004 encompasses the following measures: (i) adopt a privatization strategy for the Malian Telecommunications Company (SOTELMA) and a timetable for its implementation by end-June 2004; (ii) complete discussions with the winning bidder for the concession contract for company managing the airports (ADM); (iii) submit a draft law to the National Assembly for the legal dissolution of the railroad company (RCFM); (iv) bring two hotels (Hôtel Azalai and Hôtel Club Sélingué) to the point of sale; and (v) adopt an action plan for opening up the capital of the pharmaceutical company (UMPP) through a tender offer.

Cotton sector reform

43. The cotton sector reform reflects the updated action plan of the Development Policy Letter, which the government adopted in November 2003. Its objective is to boost producers' revenues, to reduce poverty in production areas, and to increase the sector's contribution to Mali's economy by cutting production costs, setting prices based on world market prices, and, in the medium term, deregulating the sector.

44. By 2006, the main measures are to divide the CMDT into three or four private enterprises, encourage farmers' organizations to play a greater role in managing the sector, and strengthen the involvement of the private sector, producers, and local governments in the sector's development. Toward those objectives, the government will hire a consultant for the privatization of the CDMT, who will draw up an operational master plan for its privatization by September 2004. The consultant will also oversee a study on the creation of a trade association for the cotton sector, to be completed by end-June 2004; the trade association is to play an essential role in the deregulation of the sector. In addition, by end-June 2004, the government will prepare and adopt an action plan consolidating all reform measures for the cotton sector. Finally, it will ensure that the producer price for seed cotton for the 2004/05 campaign is set by end-May 2004 by using the price mechanism agreed upon for that purpose.

Public expenditure management

45. The government intends to continue to strengthen public expenditure management. Accordingly, with the help of development partners, it will establish a computer network linking the departments of the Ministry of Economy and Finance. This will lead to an harmonization of databases and a rapid improvement in the integrated public finance management system. In addition, the government will strengthen the financial and administrative departments of individual ministries in order to improve budget preparation and the monitoring of budget execution, both at the department level and at the level of the Ministry of Economy and Finance. The government will also strengthen the medium-term expenditure framework, which will be updated annually to reflect the revised PRSP objectives and integrate budget preparation into a rolling, medium-term expenditure program.

46. The government will strengthen the monitoring of the public investment program to improve the level of project and program implementation through the following actions: (i) implementing computerized procedures for programming, monitoring, and assessing public investment at the National Directorate for Development Planning; and (ii) strengthening the services responsible for programming and monitoring public investment at the sectoral ministry level, and instituting a quarterly review of development projects and programs. To improve the monitoring of government financial operations, the coverage of the government flow of funds table (TOFE) will be extended to include not only the central government's financial operations, but also those of other public administrative entities and local governments.


47. Efforts to enhance governance in public resource management are to continue and the authorities are convinced of the need to focus on quality control and performance. Already, the accounts section of the Supreme Court has been allocated additional staff resources, and a General Government Auditor (Vérificateur Général de l'État) has been appointed. In 2004, the authorities will further strengthen the government audit and inspection agencies.


48. The process of devolving responsibilities to local authorities, begun in 1995, aims to improve the public sector's effectiveness and to involve Mali's population to a greater extent in the drawing up of social and economic policies. Local elections are scheduled for May 2004, and an action plan has been prepared to make devolution effective over the period 2003-05. However, discussions are continuing regarding the transfer of resources to local authorities so that they will be able to accomplish the tasks devolved to them.

49. The authorities believe that, to succeed, devolution must be accompanied by a strengthening of the central government departments at the local level, and that the rules and principles of sound management, transparency, and accountability must be applied at the local government level. To this end, particular efforts will be made to strengthen the national and regional departments of the central government financial agencies. Moreover, local government staff will be given the training necessary to take over responsibilities in the health, education, and water sectors.

D. Improvement of Economic Statistics

50. The authorities will continue to implement the recommendations of the mission from the Fund's Statistics Department, which took place in 2003. In addition to the medium-term plans described above to improve statistics, the government will draw on the results of the Malian survey on poverty to update the poverty profile and to better guide social and economic policies. The results of the survey will also be used to revise the base year of the national accounts and the weights for the consumer price index.

Table 1. Mali: Quantitative Performance Criteria and Indicative Targets for March 2004 - March 2005 1/
(In billions of CFA francs)




   Quantitative performance criteria
      Net domestic financing of the
         government 2/ 3/
      Net domestic financing, adjusted
         2/ 3/
      Cumulative change in
         government external payments
         arrears 4/
      New external borrowing at terms
         of one year or more 3/
         contracted or guaranteed by
         the government on
         nonconcessional terms 4/ 5/
      New short-term external debt
         (less than one year) contracted
         or guaranteed by the
         government 4/ 6/
   Financial performance indicators
      Cumulative tax revenue 7/
      Cumulative wage bill 3/
      Overall basic fiscal balance 8/
Memorandum items:
   External budgetary assistance
      during the year 9/
   HIPC Initiative debt relief
   Expenditure financed with HIPC
      Initiative resources
   Balance of HIPC Initiative

1/ All numbers are cumulative, starting at the beginning of each year.
2/ The adjustment factors are described in paras. 7 and 8 of the technical memorandum of understanding.
3/ Maximum.
4/ These performance criteria will be monitored on a continuous basis.
5/ See para. 16 of the technical memorandum of understanding for the donors concerned.
6/ Excluding import-related credit and CMDT borrowing from foreign banks secured by the proceeds of cotton exports, and debt relief.
7/ Minimum.
8/ Minimum. See paragraph 29 of the technical memorandum of understanding for definition.
91/ Excluding use of Fund resources.

Table 2. Mali : Structural Measures Constituting Prior Actions, Performance Criteria, and Benchmarks, April 2004 - March 2005

Measures Date

Prior Actions
1. Creation of a unit in the Ministry of Economy and Finance to monitor the macroeconomic program.  
2. End the provisional administration of BIM SA and establish the new management structure for BIM SA.  
Performance Criteria
1. Adoption by the government of an operational master plan for the privatization of the CMDT. End-September 2004
2. Adoption by the government of a privatization strategy for the Telecommunications Company (SOTELMA) and a timetable for its implementation. End-June 2004
3. Adoption by the government of a strategy and timetable for the privatization of BIM SA. End-September 2004
4. Finalization of actuarial studies on CRM and of audit of the files on INPS contributions and beneficiaries. End-December 2004
1. Completion of an audit of expenditures financed with HIPC resources. End-May 2004


Technical Memorandum of Understanding

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.

I. Definitions

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" 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) Debt is considered concessional if, on the date the contract is signed, the ratio of the present value of the debt, based on the reference interest rates, to the nominal value of the debt 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.

II. Quantitative Performance Criteria

A. Ceiling on Net Domestic Financing of the Government

4. 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 below, (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.

5. 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.

6. 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.

Adjustment factor

7. The ceiling on the change in 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-June 2004; at CFAF 15 billion at end-September 2004; CFAF 25 billion at end-December 2004; and CFAF 15 billion at end-March 2005. In the context of the program, cumulative external budgetary assistance is expected to reach CFAF 4.9 billion on March 31, 2004, and CFAF 19.5 billion for end-June to end-December 2004. For end-March 2005, no external budgetary assistance is forecast.

8. 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

9. The ceiling on the cumulative change in net domestic financing is established at CFAF 6.5 billion at June 30, 2004; CFAF -10.3 billion at September 30, 2004; CFAF 23.9 billion at end-December 2004; and CFAF -10.5 billion at March 31, 2005. The ceiling is a performance criterion at end-September 2004, and end-March 2005, and indicative targets at end-June 2004, and end-December 2004.

Reporting deadline

10. 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


11. 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

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


13. 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.

14. 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

15. Starting with the program approval by the Executive Board of the IMF, a ceiling of zero is set for nonconcessional borrowing. This performance criterion is monitored on a continuous basis.

16. 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

17. 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.

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


18. The definitions in paragraphs 13 also apply to this performance criterion. This performance criterion is monitored on a continuous basis

19. 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

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

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

III. Quantitative Indicators

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

A. Floor for Tax Revenues


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

Performance indicators

24. Quantitative performance indicators for tax revenues are set at CFAF 167.1 billion at June 30, 2004, at CFAF 265.7 billion at end-September 2004, CFAF 383.7 billion at end-December 2004, and at CFAF 106.8 billion at end-March 2005.

Reporting deadline

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

B. Ceiling on the Wage Bill


26. 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.

Performance indicators

27. The quantitative performance indicators for the wage bill are set at CFAF 61.1 billion at June 30, 2004; CFAF 91.5 billion at end-September 2004; CFAF 122.0 billion at end-December 2004, and CFAF 33.7 billion at end-March 2005.

Reporting deadline

28. 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


29. 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

30. The floors for the performance indicators for the basic fiscal balance, excluding HIPC Initiative-related expenditure, are set at CFAF -1.5 billion at June30, at CFAF 8.7 at end-September 2004, and at CFAF -2.6 billion at end-December 2004. For 2005, the floor is set at CFAF 20.8 billion at end-March.

Reporting deadline

31. 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.

IV. Structural Measures

32. 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.

33. 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.

V. Additional Information for Program Monitoring

A. Government Finances

34. 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 2004, 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 2004. 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

35. 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

36. 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

37. 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.

E. Information Regarding the Implementation of the PRSP

38. 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 (payment order and cash basis) in the total 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.

VI. Summary of Data to be Reported

Data Type
Time Frame

Real sector National accounts Annual End of year + 9 months
Revisions of the national accounts Variable 8 weeks following the revision
Disaggregated consumer price indexes Monthly End of month + 2 weeks
Government finances Net government position (including the list of accounts of other public entities with the banking system) and breakdown of nonbank financing Monthly End of month + 3 weeks (provisional); end of month + 6 weeks (final)
TOFE of the central government and consolidated TOFE Monthly End of month + 3 weeks (provisional); end of month + 6 weeks (final)
Breakdown of fiscal revenue and expenditure in the context of the TOFE Monthly End of month + 6 weeks (TOFE)
Separate report on outlays financed with HIPC resources Monthly End of month + 6 weeks
Execution of capital budget Quarterly End of quarter + 8 weeks
Tax revenues in the context of the TOFE Monthly End of month + 6 weeks
Wage bill in the context of the TOFE Monthly End of month + 6 weeks
Basic fiscal balance in the context of the TOFE Monthly End of month + 6 weeks
Formula for setting prices of petroleum products, tax revenues from petroleum products, and subsidies paid Monthly End of month + 4 weeks
Monetary and financial data Summary accounts of the BCEAO, summary accounts of banks, and accounts of the banking system Monthly End of month + 4 weeks (provisional); end of month + 8 weeks (final)
Foreign assets and liabilities of the BCEAO Monthly End of month + 8 weeks
Lending and deposit interest rates, BCEAO intervention rates, and BCEAO reserve requirements Monthly End of month + 4 weeks
Bank prudential ratios Monthly End of month + 6 weeks
Balance of payments Balance of payments Annual End of year + 12 months
Revisions of balance of payments Variable 8 weeks following each revision
External debt Breakdown of all new external borrowing Monthly End of month + 4 weeks
Debt service, indicating amortization, interest payments, and relief obtained under the HIPC Initiative Monthly End of month + 4 weeks
PRSP Share of poverty-reducing expenditure Quarterly End of quarter + 4 weeks
Share of primary education in total outlays of the education sector Quarterly End of quarter + 4 weeks
Gross enrollment ratio in the primary education, with its breakdown between girls and boys Annual Beginning of the next academic year +1 month (final)
Percentage of the population having access to health care facilities within a radius of 15 kilometers Annual End of year + 2 months
Rate of assisted births Annual End of year + 2 months
Data on immunization rate DTCP3 of child below 1 year Annual End of year + 2 months