Public Information Notice: IMF Executive Board Concludes 2005 Article IV Consultation with the Islamic Republic of Mauritania and Reviews Noncomplying Disbursement

June 2, 2005

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 27, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Islamic Republic of Mauritania.1 The Executive Board also discussed the Managing Director's report on the noncomplying disbursement that arose in the context of Mauritania's 2003 Poverty Reduction and Growth Facility (PRGF) arrangement. The initial disbursement, which the authorities voluntarily repaid on November 4, 2004, was found to be noncomplying as a result of inaccurate information provided to the Executive Board on the implementation of one of the prior actions required for the approval of the arrangement. In light of its voluntary repayment, the Executive Board decided to take no further action.


Mauritania reached the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC) in May 2002, and in July 2003 embarked on a new three-year program supported by a PRGF arrangement in the amount of SDR 6.44 million (see Press Release No. 03/117). However, based on the revised fiscal and monetary figures for 2003 and the first half of 2004 that were submitted to the IMF staff in September 2004, the program was found to be irretrievably off-track. On November 7, 2004, at the authorities' request, the arrangement was cancelled. The revised figures showed large extrabudgetary spending—which the authorities reported to be in part related to the implementation of an emergency plan to protect poor people from the effects of the 2002 drought and to security-related outlays—financed by monetary expansion and a drawdown of official reserves. The resulting cumulative fiscal deficit during the 18 months from January 2003 exceeded 50 percent of annual GDP while currency in circulation and broad money more than tripled.

In 2003-04, with the fiscal impulse and the buoyant construction sector, real GDP grew at an estimated 6-7 percent per annum. In 2003, CPI inflation remained subdued (5.5 percent on average) but in 2004 it increased to about 16 percent by year-end, reflecting a lagged effect of the fiscal and monetary expansion through mid-year and upward adjustments in the retail prices of petroleum products. Despite buoyant iron ore exports in 2004, the current account deficit (excluding oil activity and other FDI-related imports) remained close to 16 percent of GDP for two consecutive years, reflecting the rise in government imports in 2003 and the first half of 2004, related to the large extrabudgetary spending, and in international petroleum prices in 2004. The parallel foreign exchange market premium over the official exchange rate, surged in the summer of 2003 and peaked above 20 percent in April/May 2004.

In July 2004, a new economic team took actions to tighten fiscal and monetary policies. Off-budget spending was discontinued, the Central Bank of Mauritania (BCM) curbed its financing of government operations and raised reserve requirements on bank deposits to start mopping up excess liquidity. The BCM stepped up its intervention on the foreign exchange market, but at the same time officially stopped foreign exchange auctions and began to prioritize its sales toward payments for imports of key commodities (including petroleum products and staple goods). Broad money remained stable in the second half of 2004, and the parallel market premium decreased gradually to an average of 16 percent in April 2005.

In 2003-04, progress in structural reforms was slower than planned (except for the restructuring of the social security fund) and major weaknesses surfaced in fiscal, monetary, and exchange rate management. Recently, however, the authorities took steps to resume structural reforms in these areas, with technical assistance of the Fund and World Bank staffs. The quality of financial and fiscal data reporting is expected to improve with the recent reconciliation of treasury and central bank data and the planned external certification of the BCM financial statements as of end-2004.

Mauritania is expected to become an oil producer in 2006 and has started to prepare for the challenges of managing potentially significant oil revenues. The authorities intend to adopt sound principles for oil revenue management and tracking (various frameworks, such as the one proposed in the Extractive Industry Transparency Initiative, are under consideration). The authorities plan to budget all the forthcoming oil-revenue and to use it in accordance with the priorities that will be set up in the 2006-10 Poverty Reduction Strategy Paper, to be submitted to Parliament by end-2005.

Executive Board Assessment—Article IV Consultation

Executive Directors were disappointed that serious fiscal and monetary policy slippages in 2003 and the first half of 2004 undermined achievement of Mauritania's ambitious macroeconomic objectives and progress in implementing the poverty reduction strategy. Extra-budgetary spending and monetary expansion in this period led to double-digit inflation and a drawdown of foreign reserves. In Directors' view, these policy slippages revealed serious governance and ownership issues.

Directors expressed concern that weaknesses in, and unavailability of, crucial data prevented staff from conducting a complete assessment of Mauritania's economic performance and policies and projecting monetary conditions in 2005. They welcomed the authorities' recent efforts to improve the quality of monetary and fiscal data, including the reconciliation of the central bank and treasury accounts and the ongoing external audit of the central bank's 2004 financial statements. They also welcomed the central bank's intention to strengthen its financial reporting and to implement most of the safeguards assessment recommendations. However, many Directors emphasized that independent verification of the end-2003 central bank financial statements and full disclosure of information available to confirm the official reserves for 2000-02 will be required before a request for use of Fund resources or for a staff-monitored program can be considered. A number of Directors supported a prompt initiation of discussions on a staff-monitored program, noting the urgency of reestablishing program relations, and a few Directors considered the authorities' request for Emergency Assistance justifiable in light of the drought and locust invasion. Directors strongly urged the authorities to cooperate fully with the staff to resolve swiftly the remaining data issues.

Directors welcomed the return to fiscal and monetary restraint by the new economic team appointed in July 2004. They commended the coordinated measures taken since then to curb extra-budgetary spending, withdraw central bank financing of the budget, and reduce excess liquidity. They urged further tightening of fiscal and monetary policies and a re-engagement with structural reforms—with particular emphasis on data integrity, public financial management, and central bank controls—in order to bring inflation down, rebuild external reserves, and combat vulnerabilities related to the narrow export base. They also advised the authorities to step up efforts to mobilize external balance of payments support for Mauritania. Directors considered Mauritania's medium-term prospects to be favourable in light of the expected oil wealth and expansion in other extractive industries, provided the authorities continue to implement sound policies and structural reforms.

Directors welcomed the projected narrowing of the fiscal deficit in 2005, particularly the significant decline in government spending. They advised further cuts in non-priority spending, while emphasizing that social spending should continue to be protected, and encouraged broadening of the tax base and strengthening of tax administration to boost non-oil revenue. Rigorous execution of the 2005 budget law and adoption of a strict budget law for 2006 will be important steps toward maintenance of a prudent fiscal policy, which should be anchored in a medium-term expenditure framework. Directors called on the authorities to implement expeditiously the recommendations of the fiscal ROSC. They supported the proposed focus on the non-oil fiscal balance, in view of the volatility of oil prices.

Directors stressed that monetary and fiscal policies should be compatible with the de facto exchange rate peg. They welcomed the authorities' willingness to prepare for the transition to a more flexible exchange rate, and encouraged the early adoption of a strategy for orderly exit from the de facto peg. They also urged the authorities to eliminate the current restriction on the making of payments and transfers for current international transactions, as soon as balance of payments conditions permit, noting that this would reduce recourse to the parallel market for foreign exchange.

Directors called for accelerated implementation of measures to ensure transparent and efficient management of the emerging oil boom, and for equitable distribution of the oil wealth among regions and ethnic groups. They stressed that a strong legal and fiscal framework for the collection and management of oil revenue will need to be established, with due attention paid to absorption capacity, macroeconomic stability requirements, and long-term savings objectives. The legal framework should explicitly promote transparency, through measures such as an annual independent audit of the oil accounts, disclosure of all transactions, and publication of oil-related contracts. Directors recommended that the operations of the envisaged oil stabilization and savings funds be fully integrated into the government budget, which should be subject to a rigorous appropriation process. They encouraged Mauritania to participate in the Extractive Industries Transparency Initiative.

Directors urged the authorities to resume implementation of the structural reforms as quickly as possible. They stressed that the overhaul of public finance management, transparent fiscal reporting, and multi-level expenditure controls will be indispensable safeguards against over- and mis-spending. They called for concrete steps to implement the pending government programs in support of good governance and public administration reforms, including the adoption of a code of conduct and a modern system of remuneration for civil servants. Directors emphasized the need for a well-functioning foreign exchange market that bans discriminatory practices—this will help the development of a sound banking system, which currently faces high risk concentration and foreign exchange exposure and a lack of confidence. Directors also urged the authorities to cooperate fully on data issues to maximize the effectiveness of the planned FSAP mission.

Directors welcomed the authorities' intention to gear medium-term spending plans toward poverty reduction. They observed that, to achieve significant progress toward Mauritania's Millennium Development Goals, a comprehensive medium-term strategy should guide the allocation of the oil revenues to priority sectors while safeguarding macroeconomic stability. In this regard, Directors looked forward to the completion in the coming months of the new PRSP covering the period 2006-10. They hoped that candid and far-reaching lessons will be drawn from the execution of the 2001-04 PRSP, including on ways to improve the targeting of social expenditures.

Noncomplying Disbursement

The Executive Board reviewed the matter relating to one noncomplying disbursement to Mauritania, in the amount equivalent to SDR 0.92 million, that was made in July 2003 following the approval of the Executive Board of a three-year Poverty Reduction and Growth Facility (PRGF) arrangement for Mauritania.

The issue of misreporting arose because of inaccurate information provided to the IMF relating to the implementation of one of the prior actions required for the approval of the arrangement. Revised data for 2003 and the first half of 2004, provided to the IMF in September 2004, showed large extrabudgetary spending and corresponding central bank financing in the first quarter of 2003 that were excluded from data provided to the IMF in May 2003 and on the basis of which the arrangement was approved.

Directors regretted the occurrence of misreporting under the 2003 PRGF arrangement. They stressed that the provision of inaccurate information to the IMF on the PRGF-supported program over a period of one and a half years was a very serious matter. Accurate reporting of data is crucial in maintaining trust between the IMF and its members, which is fundamental to the work of the IMF as a cooperative institution. However, given the authorities' voluntary repayment of the noncomplying disbursement on November 4, 2004, Executive Directors agreed that no action be taken.

The Islamic Republic of Mauritania: Selected Economic Indicators

  2001 2002 2003 2004


(Percentage changes; unless otherwise indicated)

National income and prices


GDP at constant prices






GDP deflator






Consumer price index (period average)






Consumer price index (end of period)






External sector


Exports of goods, f.o.b. (in U.S. dollars)






Imports of goods, f.o.b. (in U.S. dollars)






Imports of goods, f.o.b. (in U.S. dollars) 1/






Official transfers (in percent of GDP)






Current account balance (in percent of GDP) 2/






Current account balance (in percent of GDP) 1/ 2/






Money and credit


Money and quasi-money






Currency in circulation







(In percent of GDP)

Consolidated government operations


Revenue and grants






Revenue, excluding grants






Expenditures and net lending






Overall balance excluding grants






Overall balance including grants







Memorandum items:


Ouguiya/US$ exchange rate (end of period)






Exports, f.o.b. (in millions of U.S. dollars)






Imports, f.o.b. (in millions of U.S. dollars) 1/






Nominal GDP (in billions of ouguiyas) 3/






Nominal GDP (in millions of U.S. dollars)






Population (in millions)






GDP per capita (in U.S. dollars)






Sources: Data provided by the Mauritanian authorities; and IMF Staff estimates and projections.

1/ Excluding oil exploration/production and other mining (copper, gold)-related activities.

2/ The external current account surplus in 2002 reflects the late payment of the 2001 EU fishing compensation.

3/ Using the new 1998 basis.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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