IMF Executive Board Concludes 2017 Article IV Consultation with the Islamic Republic of Mauritania

IMF News, August 9, 2017

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On July 28, 2017, the Executive Board concluded the Article IV consultation with the Islamic Republic of Mauritania.
Mauritania faced a challenging external environment with low and volatile metal prices; a steep decline in iron ore prices in 2014–15:
- “took away half of exports, widened the fiscal deficit, put pressure on reserves, and exposed bank vulnerabilities.”
Authorities’ 2016 policy response included:
- Budget adjustment in 2016 (by 3 percent of GDP).
- Allowing the exchange rate to adjust.
- Mobilizing foreign grants and loans.
These efforts contributed to:
- External current account deficit narrowing to 15 percent (2016).
- Inflation contained at 1.5 percent (average in 2016).
- Growth remained low: estimated 1.7 percent (2016).
- External debt rose to 72 percent of GDP (2016).
Reserves: dipped to 4.8 months of non-extractive sector imports as of March 2017.
Potential upside: possible development of a recently discovered off-shore gas field could be a game-changer starting in 2021.
Authorities preparing a national strategy for accelerated and inclusive growth covering 2016–30, including structural reforms and a large-scale, foreign-financed infrastructure investment program.

Directors commended the authorities’ strong economic policy response but noted that macroeconomic and financial stability and the incipient recovery remain fragile.
Main challenge: support growth, reduce poverty and unemployment, diversify the economy, and meet infrastructure needs while strengthening macroeconomic stability, the external position, and debt sustainability.
Given limited resources and elevated debt, Directors called for sustained prudent policies and structural reforms.

Majority view: greater exchange rate flexibility is a priority to:
- Boost competitiveness.
- Improve the external position.
- Absorb shocks.
- Allow monetary policy to better address tight bank liquidity and support economic growth.
A few Directors questioned the exchange rate’s potential to boost competitiveness given the limited production base.
Directors encouraged:
- Introducing a competitive and transparent foreign exchange auction system.
- Removing regulatory obstacles to development of an interbank market.
- Strengthening reserve buffers.
Some Directors noted authorities’ concern that accommodative monetary policy could jeopardize efforts to stabilize the still weak external position.

Directors recommended fiscal policy focus on:
- Consolidating the adjustment achieved so far.
- Creating fiscal space by accelerating ongoing reforms to allow higher social and infrastructure spending without jeopardizing macroeconomic stability and debt sustainability.
Specific recommendations:
- Continue to modernize tax and customs administration.
- Introduce a corporate income tax.
- Adopt the new organic budget law.
- Review and phase out tax exemptions.
- Operationalize recent measures to strengthen public investment and debt management promptly to help prioritize projects.
Debt guidance:
- Avoid non-concessional borrowing and give preference to concessional loans and grants.
- Regarding negotiations with bilateral non-Paris Club creditors, a few Directors reiterated the importance of preserving comparability of treatment across official bilateral creditors.

Directors stressed the importance of addressing heightened financial stability risks and boosting credit to the private sector.
Encouraged accelerating implementation of the 2014 FSAP recommendations, especially:
- Strengthening banking supervision.
- Adopting the new banking law and central bank statute.

Directors welcomed the draft multi-year development strategy for higher and more inclusive growth and urged swift finalization and implementation.
Recommended expanding social policies and strengthening social safety nets.
Continue efforts to improve business climate and governance to support private sector growth, job creation, and diversification.
Emphasized higher spending on education and health to improve social outcomes, productivity, and poverty reduction.

Money and Credit (Annual change in percent; unless otherwise indicated)
- Broad money: 2015: 0.4; 2016: 7.1; 2017 (Proj.): 7.3; 2018 (Proj.): 7.5
- Credit to the private sector: 2015: 9.7; 2016: 8.0; 2017 (Proj.): 6.5; 2018 (Proj.): 7.4

Memorandum items:
- Price of iron ore (US$/Ton): 2015: 56.1; 2016: 58.6; 2017 (Proj.): 65.1; 2018 (Proj.): 51.7
- Nominal GDP (in millions of US$): 2015: 4,844.2; 2016: 4,729.0; 2017 (Proj.): 4,960.6; 2018 (Proj.): 4,999.6

1/ Excluding passive debt to Kuwait under negotiation.

IMF Communications Department — Press Release No. 17/324 (August 9, 2017).