Press Release No. 97/32

The International Monetary Fund (IMF) approved the third annual loan under the Enhanced Structural Adjustment Facility (ESAF)¹, in an amount equivalent to SDR 14.25 million (about US$20 million), to support Mauritania’s economic program in 1997. The loan is available in two equal semiannual installments, the first of which can be drawn on July 31, 1997. The three-year ESAF credit, for the equivalent of SDR 42.75 million (about US$59 million) was approved on January 25, 1995 (see 95/5).

Background

Since late 1992, the Mauritanian government has been implementing a comprehensive medium-term adjustment program, which has achieved significant results: savings and economic growth have rebounded, inflation has been lowered, fiscal stability has been regained, and the external current account has been strengthened. Progress has also been made in the areas of price liberalization, restructuring of the banking system and key public enterprises, tax and trade reforms, liberalization of the banking system, and reform of the fisheries sector. Economic adjustment has been also accompanied by a reduction in poverty and an improvement in social indicators. In 1996, economic growth continued at over 4.5 percent, the annual rate of inflation declined to 4.7 percent from 6.5 percent in 1995, and the external current account deficit (excluding official grants) narrowed to 9.7 percent of GDP, from 13.1 percent of GDP in 1995. While progress was made during 1996 in the reduction of macroeconomic imbalances, Mauritania’s economy remains vulnerable to external shocks mainly because of the high external debt burden and export concentration.

The 1997 Program

The key macroeconomic objectives of the 1997 program that the ESAF supports are to (1) achieve a real GDP growth rate of 4.9 percent; (2) hold the inflation rate at 5 percent; and (3) limit the external current account deficit, excluding official transfers, to 5.5 percent of GDP. To achieve these objectives, fiscal policy envisages an overall government surplus of 4.1 percent of GDP in 1997, reflecting the further rationalization and control of expenditure, and the containment in the decline of total revenues in relation to GDP mainly on account of lower fishing royalties. Monetary policy under the program will be consistent with the achievement of the program’s inflation and balance of payments objectives.

Structural Reforms

In 1997, the government has undertaken a number of actions to reform the legal, judicial, and regulatory framework, including notably accelerating procedures for establishing new enterprises and adopting measures to encourage private sector investment in the mining sector. Legislation is also being prepared to encourage private sector participation, particularly in the transport and energy sectors.

Addressing Social Needs

The authorities are committed to observing minimum levels of expenditure on health and education, and are adopting measures to further improve the quality and coverage of services in these areas. While the 1996 Poverty Profile shows a decline of 7 percentage points in poverty between 1990 and 1996 to 50 percent of the population, the uneven distribution of this progress points to the need for improved targeting and monitoring of social programs, which will be undertaken with the assistance of the World Bank.

The Challenge Ahead

Achievement of high and sustainable growth will require the maintenance of sound macroeconomic policies and the deepening of structural reforms already in place. Despite the improved medium-term prospects resulting from the debt rescheduling under Naples terms granted by Paris Club creditors in 1995 and the commercial debt buy-back operation completed in 1996, Mauritania’s external debt service burden remains heavy. Sustained progress in economic policy implementation will also need to be supported by continued external financial assistance in concessional terms.

Mauritania joined the IMF on September 10, 1963, and its quota² is SDR 47.5 million (about US$66 million). Its outstanding use of IMF financing currently totals SDR 72 million (about US$100 million).

Mauritania: Selected Economic Indicators 1995 1996 1997* 1998** 1999** (Percent change) Real GDP 4.6 4.7 4.9 5.1 5.3 Consumer Prices (end of period) 6.5 4.7 5.0 4.6 4.0 (Percent of GDP) Overall Fiscal balance (deficit -) -0.8 5.3 4.1 4.0 4.0 External current account balance, excluding official transfers (deficit -) -13.1 -9.7 -5.5 -6.0 -4.5 (Months of imports) Gross official reserves 1.7 2.6 4.4 5.1 6.2 Sources:Mauritanian authorities; and IMF staff estimates and projections. * Program ** Projections 1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with 5½-year grace period. 2 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.