For more information, see Mali and the IMF
Bamako, July 12, 1999
Mr. Michel Camdessus
Dear Mr. Camdessus:
1. Following the devaluation of the CFA franc in 1994, the government of Mali has implemented a far-reaching macroeconomic adjustment and structural reform program. In support of that program, the IMF Executive Board approved on April 10, 1996, a second three-year arrangement for 1996-1998 under the Enhanced Structural Adjustment Facility (ESAF), the third annual arrangement of which expired on April 9, 1999.
2. To consolidate the encouraging progress achieved to date and set the stage for strong, sustainable economic growth that is more diversified and better distributed, the government of Mali has adopted a new program of economic reforms for the period from April 1999 to end-March 2002. The objectives of this program are contained in the medium-term policy framework paper (1999-2002), prepared jointly with the staffs of the IMF and the World Bank and forwarded to you under separate cover. The government has also prepared the attached memorandum, which is based on the above-mentioned policy framework paper and sets forth the economic objectives and policies that the government of Mali intends to pursue during 1999-2002, as well as specific objectives and measures for the period April 1999-March 2000.
3. To facilitate a wide dissemination of the memorandum on economic and financial policies, the government of Mali authorizes you to publish it, including on the IMF internet site.
4. In support of the implementation of its program, the government requests a new three-year arrangement under the ESAF in an amount equivalent to SDR 46.65 million (or 50 percent of the revised quota) and, for the first year under this facility, an amount equivalent to SDR 13.50 million (14.5 percent of quota).
5. 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 is ready to adopt any additional measures that may prove necessary to this end. During the period of the first annual program, the government of Mali will 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, at the end of the period covered by the first annual program and while Mali has outstanding financial obligations to the Fund arising from loans obtained under this arrangement, Mali will consult with the Fund periodically on its economic and financial policies, at the government's initiative or whenever you request such consultations.
6. The government of Mali will 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 midterm review of the 1999/2000 program, which will be completed no later than by end-December 1999.
Memorandum on Economic and Financial Policies for 1999/2000
July 12, 1999
1. The economic and financial program for 1999/2000 was formulated within the framework of the medium-term adjustment strategy described in the policy framework paper (PFP) for 1999-2002, which takes into account the encouraging results of the preceding programs. This strategy aims at ensuring strong and sustainable economic growth, achieving internal and external financial viability over the medium term, and reducing poverty. It calls for the implementation of rigorous fiscal and monetary policies, as well as the acceleration and deepening of structural reforms. In support of this next phase of its economic reform strategy, the government of Mali requests from the IMF a new three-year agreement under the Enhanced Structural Adjustment Facility (ESAF). Mali has also requested the support of the World Bank, as well as the financial assistance from other multilateral and bilateral donors and creditors.
2. Economic and financial developments in 1998 were on the whole encouraging. Real GDP growth was estimated at 3½ percent in 1998, despite a decline in cereals production due to unfavorable weather conditions. The 1997/98 seed cotton crop is estimated at 523,000 tons, a 15½ percent increase over the previous crop year. Inflation, which had remained moderate in the first quarter of the year, rose to an average of 4 percent, owing to the rise in food prices resulting from the poor grain harvest. Despite a real effective exchange rate appreciation of about 4½ percent in 1998, mainly reflecting price differentials, the gains in competitiveness of the Malian economy, derived from the 1994 CFA franc devaluation, have on the whole been maintained. In the external sector, exports of cotton fiber in 1998 were lower than in 1997, because of delays in shipments owing to the Asian financial crisis and the recent fall in world prices. On the other hand, gold exports were higher than projected in 1998. The volume of imports rose moderately, and the petroleum import bill fell as a result of lower import prices. As a result, the external current account deficit (excluding official transfers) remained in 1998 at its 1997 level of 9½ percent of GDP.
3. As indicated in Table 1, all the quantitative performance criteria for end-September 1998 and the quantitative benchmarks for end-December 1998 and end-March 1999 were met, except for the end-March 1999 benchmark for net bank credit to the government. However, delays have occurred in the implementation of structural reforms (Table 2). In particular, the completion of the technical audit of the cotton sector and the inclusion in the draft 1999 budget law of reforms in direct and indirect taxation, introducing a single-rate VAT at 18 percent, were only achieved in December 1998 and January 1999, respectively. In addition, there were delays in executing the privatization program.
4. The overall fiscal deficit (on a commitment basis and excluding grants) was brought down from about 8 percent of GDP in 1997 to 7½ percent in 1998. Tax revenue rose from CFAF 196.3 billion in 1997 to CFAF 222.9 billion (14 percent of GDP) in 1998, or by more than one half of a percentage point of GDP. Total government revenue is estimated at about 16 percent of GDP in 1998, owing to the good performance of the drawback system applicable to petroleum imports, and to increased efficiency in the collection of corporate income tax and the VAT. Further steps have been taken to improve the performance of the tax and customs administrations and to broaden the tax base.
5. Total government expenditure and net lending in 1998, at 23½ percent of GDP, turned out to be higher-than-foreseen, reflecting the high level of investment spending financed by domestic budgetary resources. Current expenditure was held slightly below the program ceiling, owing to the continued moderate wage policy and lower-than-anticipated interest payments. The weeding of the government payroll continued and recruitment of new staff was limited to the education and health sectors. Domestic payments arrears were reduced as planned and all domestic and foreign debt service obligations were met on time.
6. Significant reforms in the fiscal area are underway and, on the whole, are progressing as scheduled. The tariff reform, pursuant to the introduction of a common external tariff (CET) by the member countries of the West African Economic and Monetary Union (WAEMU), will be implemented by 2000. This reform involves merging the customs duty and the fiscal duty into a single customs duty, and reducing tariff protection through the introduction of four rates.1 The potential customs revenue loss is estimated at 1 percent of GDP in 1999/2000. On January 1, 1999, Mali has adopted a tariff classification that reflects the WAEMU proposals. On intracommunity trade, the tariff reduction for approved industrial products of origin was raised to 80 percent of the rates applicable to third countries in 1999, and customs duties will be eliminated in 2000. Agricultural products and traditional handicrafts are already exempt from entry duties.
7. To modernize the tax system and to offset the revenue loss incurred through the introduction of the CET, the authorities have put in place a reform of domestic taxation and are continuing to improve the customs and tax administrations. As of April 1, 1999, the two-rate VAT, the tax on the provision of services (TPS), and the contribution for the provision of services (CPS) were replaced by a single-rate VAT of 18 percent, and the number of VAT-exempt products was reduced, in line with the regional harmonization program adopted by the WAEMU Council of Ministers in December 1998. The reform of direct taxation came into force in June 1999 and included (i) the elimination of the progressive surtax in the form of the general income tax (IGR) and the introduction of a single, proportional, schedular tax on current income, including the tax on industrial and commercial profits (BIC); (ii) the application of a global tax for taxpayers whose annual turnover does not exceed CFAF 30 million; and (iii) the introduction of a tax on wages and salaries (ITS) at progressive rates and withheld at the source. To strengthen the VAT administration, the turnover threshold for taxpayers monitored by the Large Enterprise Division (DGE) was lowered from CFAF 300 million to CFAF 200 million in June 1998. Taxpayer compliance has been enhanced by extending registration on the basis of a single fiscal number for each taxpayer, which allows for better crosschecks of tax files between the customs and tax administrations.
8. With weaker-than-expected money demand in 1998, the money supply grew modestly by 4¼ percent as against 8½ percent in 1997. Reflecting the good fiscal performance, net bank credit to the government declined further in 1998 while credit to the economy rose by 28 percent. This latter development partly reflected the impact of exceptional factors related to the delays in cotton fiber export shipments and in the repayment of 1997/98 crop credits, as well as other short-term loans to a local company. Excluding these exceptional loans, credit to the private sector rose by about 15 percent. As a result of these developments, the net foreign assets of the banking system declined by about 11 percent in terms of the beginning-of period-money stock. In view of the pressures on the price level and the size of transfers abroad by banks in the WAEMU area, the regional central bank moved to gain better control of bank liquidity. The BCEAO raised, as of August 16, 1998, the reserve requirements ratio for Malian banks from 1.5 percent to 9 percent, and made similar adjustments elsewhere in the zone. As of August 31, 1998, the BCEAO also raised its repurchase and discount rates by one quarter of a percentage point to 5.75 percent and 6.25 percent, respectively. With prices coming down later in the year, the BCEAO lowered the reserve requirements ratio for Malian banks from 9 percent to 3 percent on December 16, 1998. It also lowered its repurchase and discount rates by one half of a percentage point on January 4, 1999, to 5.25 percent and 5.75 percent, respectively.
9. The health of the Malian banking system has improved since 1995, and most banks showed a profit in 1997 and 1998. However, the banks' situation remains fragile, and a number of banks have failed to comply with some of the WAMU Banking Commission's prudential ratios. Gross nonperforming loans at end-1998 remain high, representing about 26 percent of the banks' portfolio of credit to the economy; provisions cover 64 percent of this amount. The restructuring of Banque Internationale pour le Mali (BIM-SA), based on the proposals submitted to the Regional Banking Commission in September 1998, could not be completed in December 1998 as planned, and is still under way. Similarly, the call for bids to open up the capital of the Banque Malienne de Crédit et de Dépôts (BMCD), a structural benchmark for end-December 1998, has been postponed.
10. Regarding the other structural reforms, progress has been made despite the delays that have occurred in some cases. The new charter of the Malian Chamber of Commerce and Industry has been put in place and elections for the appointment of new adjudicators for the commercial courts took place on November 14, 1998. The government has started implementing the OHADA2 uniform act on collateral, thereby facilitating the enforcement of contractual obligations relating to guaranteed bank loans. The technical audit of the cotton sector was completed at end-December 1998. An action plan was prepared on the basis of this audit, with a view to achieving productivity gains in the sector to improve its competitiveness, and in order to increase private sector involvement. In the meantime, the producer price for seed cotton for the 1998/99 crop year was raised from CFAF 170 per kilogram to CFAF 185 per kilogram and the Compagnie Malienne pour le Développement des Textiles (CMDT) repaid the funds it borrowed from the Cotton Sector Stabilization Fund in November 1998, as scheduled. Three public enterprises were privatized in 1998 and the concession contract for the Hôtel de l'Amitié was signed in June 1998. However, the sale of the government's minority shareholdings in four small enterprises and the privatization of the tobacco company (SONATAM) were postponed to 1999.
11. Despite the progress made since 1994 in stabilizing the economy and improving its competitiveness, economic growth in Mali continues to be hampered by (i) high transaction costs due to the weak legal and regulatory systems, as well as cumbersome administrative procedures; (ii) limited financial intermediation; (iii) high costs of public utilities, especially for water, electricity and telephone, and an inefficient transport infrastructure; (iv) an unfinished agenda of public enterprise reform; and (v) a lack of human resources. Furthermore, poverty remains a major concern and the Malian economy, based mainly on agriculture, is still vulnerable to changes in weather conditions and terms of trade shocks. To achieve sustainable economic growth at a rate sufficiently high to alleviate poverty, as well as internal and external financial viability, Mali's medium-term development strategy seeks to capitalize on the gains achieved in macroeconomic stabilization and to deepen and accelerate the implementation of structural reforms.
12. This development strategy, which will be carried out in the context of further regional integration, consolidation of the democratic process, and implementation of the administrative decentralization policy, is based on the development of the private sector as the engine of growth and will address continuing problems in key areas. The government's strategy will focus on (i) the consolidation of government finances through an improved revenue and expenditure structure; (ii) the strengthening of the traditional role of the state in the legal, regulatory, and social areas, as well as the government's divestiture of its interests in commercial and industrial activities to the benefit of the private sector; (iii) the creation of a conducive environment for private investment and job creation, thereby promoting a diversification of the productive base and exports; and (iv) human resource development, especially in the education and health sectors.
13. A lasting improvement of government finances will continue to be a major component of Mali's adjustment strategy. Despite the substantial fiscal consolidation achieved in recent years, the overall fiscal deficit (on a commitment basis and excluding grants) remains high and progress toward financial viability still remains fragile, in the face of the uncertainty regarding external aid. To further consolidate government finances, the overall fiscal deficit (on a commitment basis and excluding grants) should be reduced to 5¼ percent of GDP in 2002. Fiscal policy will emphasize increased revenue mobilization, especially of domestic revenue, to offset the potential losses in customs revenue arising from the introduction of the CET. The success of this effort will require a broadening of the tax base, the prompt implementation of the direct and indirect tax reforms, and improved performance of the collection agencies. At the same time, strict control should be exercised over public spending, while rationalizing its structure and increasing its efficiency, so as to allocate more resources to the social sectors, including the provision of key services to the rural areas, and ensuring adequate allocations for investments and maintenance of public infrastructures. The wage bill, in particular, will have to be kept within reasonable limits, while allowing scope to provide the necessary incentives for greater productivity and to rejuvenate the civil service. Improved budget control and strict public resources management will help to release the necessary public savings to finance the investment expenditure needed for a higher growth rate. In addition, Mali will host the African Nations, Cup in 2002, which will be a major challenge for the Malian economy. The authorities will ensure that most of the financing of the cost of organizing this event will come from the private sector and foreign partners, and that the required public expenditures, which could be financed by part of the prospective privatization proceeds, will not jeopardize the attainment of the objectives of the economic program.
14. Deepening structural reforms and accelerating their implementation are essential to significantly reduce the obstacles that potential investors are facing and to raise potential output growth. The main actions to be undertaken are (i) the improvement of the legal, judicial, and institutional environment to support the development of the private sector and increase domestic and foreign private investment; (ii) the acceleration of the existing privatization program and the restructuring of the public enterprises remaining in the government's portfolio; (iii) a reform of the financial sector in order to increase financial savings and ensure efficient credit allocation; (iv) reforms in the energy, telecommunications, agricultural and mining sectors; (v) a reform of the civil service, with a view to modernizing and rejuvenating government administration and increasing its efficiency; and (vi) the implementation of well-targeted actions to alleviate poverty and make social services more widely available, in particular in the education and health sectors.
15. With the policies outlined above, the main macroeconomic objectives for 1999-2002 are to (i) achieve an annual real GDP growth rate of at least 5 percent, in order to raise per capita income by some 2 percent per year; (ii) limit annual inflation to 2-3 percent, a rate consistent with the CFA franc parity vis-à-vis the Euro; and (iii) reduce the external current account deficit (excluding official transfers) to 7 percent of GDP by 2002. The expansion in economic activity is expected to result mainly from continued growth in the cotton and gold sectors and the gradual recovery of the other sectors, including light industry.
The Program for 1999/2000
16. Within the framework of the medium-term strategy, the 1999/2000 program foresees a real GDP growth rate of 6½ percent in 1999, reflecting the rebound in agricultural production owing to a more favorable rainfall, and of 5 percent in 2000. The rate of inflation should return to the 2-3 percent range in 1999 and 2000. The external current account deficit (excluding official transfers) should be reduced from 9½ percent of GDP in 1998 to 8½ percent in 1999 and 2000, owing largely to the recovery of cotton exports and a moderate increase in imports. Based on commitments already received for foreign financial assistance, the prospective financing gap of CFAF 19 billion (excluding Fund resources) in 1999 is expected to be fully covered by exceptional financing from the World Bank, the European Union, and the Netherlands. The overall balance of payments in 1999 should show a surplus of CFAF 13¾ billion as against a deficit of CFAF 39½ billion in 1998. The program also aims at raising the investment ratio from 21 percent of GDP in 1998 to 22 percent in 2000, which will require an increase in the domestic savings ratio from 10¼ percent of GDP in 1998 to 12¾ percent in 2000.
17. In the fiscal area, the program aims at increasing fiscal revenue from 14 percent of GDP in 1998 to 14¼ percent in 1999, and to reduce the overall fiscal deficit (on a commitment basis and excluding grants) from a revised level of 8 percent of GDP in 1998 to 7½ percent in 1999.3
18. To reach the government revenue targets, and taking account of the impact of implementing the CET (potential revenue losses estimated at 1 percent of GDP in 1999/2000), the authorities are resolved to implement the reform of domestic taxation and to further improve the efficiency of the collection agencies. The draft laws on the reform of the system of direct and indirect taxation were approved by the National Assembly on March 11, 1999. The government will benefit from IMF technical assistance in implementing the reform of indirect taxation, with a single-rate VAT at 18 percent, which came into force as of April 1, 1999. Agricultural inputs remain subject to a specific tax of 5 percent and, from January 1, 2000, they will also bear a 5 percent customs duty. The authorities have put in place the reform of direct taxation, which was fully implemented in June 1999. The other measures to increase revenue will include the ongoing efforts to reinforce the customs and tax administrations, in line with the recommendations of the recent Fund technical assistance mission. At customs, the emphasis will be placed on eliminating all remaining exemptions not based on international treaties, and on strengthening operational controls and the procedures for goods in transit and in warehouses. The authorities will endeavor, in the context of the WAEMU, to limit the application of the degressive protection tax (TDP) and the variable tax on imports (TCI). Regarding the tax department, the authorities are to further broaden the tax base by generalizing the single taxpayer identification number and by computerizing the VAT administration and the DGE. Based on these measures, and taking into account the potential revenue losses arising from the introduction of the CET, total revenue in 1999 should reach about CFAF 277.7 billion (or 16 percent of GDP).
19. On the expenditure side, the government will exercise continued prudence, in particular as regards the wage bill and nonpriority spending, in order to allocate adequate resources to basic services in the health and education sectors, as well as to the judiciary and for public investment. Total expenditure and net lending will be held at about 23¾ percent of GDP in 1999, as against 24 percent in 1998, in line with the anticipated unchanged level of foreign-financed public investment. The wage bill will be strictly limited to the programmed level of CFAF 68.1 billion (3.9 percent of GDP), and the existing merit-based promotion system will be applied fairly and rigorously. The government has decided to limit net recruitment in the civil service outside of the priority sectors, to 200 employees a year, in order to replace the staff with better qualified and more competent people. In September 1999, it will complete the merging of the payroll and personnel registers into a single register of all government employees. The share in current expenditure allotted to the education and health sectors will increase from 34 percent in 1998 to 35 percent in 1999. Furthermore, there will be an allocation of CFAF 11 billion for well-targeted social safety net expenditures. The government will ensure that spending on the municipal elections and the administrative decentralization will remain in line with budgetary appropriations. Verified domestic payments arrears will be eliminated in 1999 and the necessary provisions will be made to settle financial obligations arising from the enforcement of court rulings.
20. Under the public investment program, the authorities will strengthen the monitoring of project implementation, in close cooperation with donors and creditors. The authorities intend to meet their commitments regarding the provision of counterpart financing. The government also envisages to adopt by end-1999, in consultation with the World Bank, a three-year public investment program for the period 2000-02, which will give priority to the agricultural and infrastructure sectors, as well as to human resources development.
21. The monetary policy conducted by the BCEAO will continue to be prudent, consistent with the objectives of maintaining the exchange rate peg between the CFA franc and the Euro, and of consolidating the Union,s external position. The regional monetary authorities will continue their efforts on setting interest rates through market mechanisms, especially by diversifying the financial instruments available to the central bank and by reinforcing open market policies. Mali will support, together with the other WAEMU member states, the monetary authorities, efforts to improve the indirect monetary policy instruments, to strengthen the functioning of the interbank and money markets, and to promote the expansion of the regional stock exchange. Broad money is expected to increase by about 9 percent in 1999, in line with nominal GDP growth. Based on the anticipated improvement in the fiscal situation, the government's net creditor position vis-à-vis the banking system should remain at its 1998 level, thereby allowing an adequate allocation of credit to the private sector. In this context, credit to the economy should expand by about 9 percent in 1999, if the exceptional factors that arose in late 1998 are not factored in. The net foreign assets of the banking system should show an improvement of CFAF 32.8 billion.
22. In the financial sector, the government will complete the restructuring of the BIM-SA by August 1999 and will launch the call for bids to open up the capital of the BMCD by September 1999, at the latest. It will also, in consultation with the World Bank, prepare by end-September 1999 and then put in place an action plan to improve the legal and judicial environment, reduce the level of non-performing loans, ensure compliance with the prudential ratios, and divest its holdings in this sector. The authorities will endeavor to implement the recommendations of the action plan on micro-finance that was adopted in February 1998, with a view to encouraging the expansion of decentralized financial systems while enhancing the control over their operations. Finally, the pension fund (CRM) and the social security agency (INPS) will be subject to a detailed audit by end-March 2000.
23. The actions to be taken by the government during the program period are set forth in the medium-term policy framework paper for 1999-2002. In this context, the authorities will step up their efforts to create a more enabling environment for the private sector. The dialogue between the government and the private sector will gain new impetus through the appointment of a moderator by end-July 1999, and the organization of consultations on fundamental issues for private sector development. The authorities are aware of the need to pinpoint the practical obstacles confronting potential investors and reduce transaction costs. Based on the study conducted by the World Bank's Foreign Investment Advisory Service (FIAS), the formalities that potential investors must contend with will be pared down by greatly simplifying administrative procedures and reducing the time it takes to obtain the approvals needed to establish new enterprises. To this end, a steering committee with private sector participation will be set up by end-July 1999. Moreover, the government will continue in 1999 to (i) strengthen and expand the operations of the one-stop investment window to other sectors; (ii) simplify the procedures for obtaining operating licenses; and (iii) reduce the fees for registering companies. All existing structures related to investment promotion will be brought together in a single center. Finally, a real estate agency with private sector participation will be established by end-1999 for the development and management of industrial parks.
24. The government will pursue its policy of rehabilitation of the judicial system. To that end, it will, by end-October 1999, adopt the development program for the judicial system (PRODEJ), including (i) a general judicial system reform policy; (ii) a ten-year judicial system development program; (iii) an action plan; and (iv) an investment plan following a round table to be organized by end-December 1999. The government will prepare a professional code of ethics for judges in 1999 and will strengthen inspections of judicial services and of the unit established to review and monitor business law. The government will also complete in 1999 its reform of the code of civil, commercial, and social procedures in order to facilitate the enforcement of loan guarantees. Steps will be taken by mid-September 1999 to ensure that commercial court adjudicators are representative of all economic sectors, including the banking and insurance sectors. The authorities will computerize the clerks offices of the commercial courts and will take steps to improve the training of judges and clerks' in OHADA and CIMA (Inter-African Conference on Insurance Markets) reforms. Finally, an arbitration center for the labor and commercial courts will become operational by end-1999.
25. The government is committed to completing the reform of the public enterprise sector by end-March 2002. To this end, it has adopted in June 1999 an action plan for the period 1999-2002 aiming to reduce the number of nonbank public enterprises under government control from 33 at end-1998 to 18 by end-March 2002.4 At the same time, the number of public enterprises with state-majority shareholdings will be reduced from 20 to 10. Among the 11 enterprises to be privatized or liquidated in 1999, an agreement in principle on the privatization of SONATAM has been signed and the divestiture of the government's minority shareholdings in SOMACO-SA, MALITAS, SMPC, and SEMA-SA has been accomplished in June 1999. In addition, the calls for bids for the privatization of UMPP, Opérations Puits, and AFB, will be issued by end-1999, and SONAREM will be restructured or liquidated,while SLMTP and ORT will be liquidated. The call for bids for the privatization of the management of Aéroports du Mali (ADM) will be issued by end-December 1999, and the Société d'Exploitation du Trafic International (SETI), a majority private-owned firm that will manage the international traffic of passengers and freight on the Bamako-Dakar railway line, is scheduled to begin to operate on December 15, 1999. To ensure the success of the planned reforms, the government will adopt the draft laws on the basic principles of privatization in September 1999. The interministerial privatization commission will be supported by a technical assistance committee in executing the action plan. Additional receipts from the privatization of public enterprises will be used, in consultation with the Fund staff, to reduce domestic public debt or to finance public investment. A supplementary budget will have to be prepared for this purpose.
26. In the energy and communications sectors, the planned reforms are being implemented as scheduled. The draft laws on the privatization of the electricity and water company (EDM) and the telecommunications company (SOTELMA) were adopted in early March 1999. EDM electricity and water rates were raised by 9.8 percent and 10 percent, respectively, on April 1, 1999, as part of measures to help EDM consolidate its financial position. Decisions on the opening of the sector to competition and on the regulatory system are expected by end-July 1999. The law on electricity will be adopted in September 1999 and the call for bids for EDM will be issued by mid-November 1999. As for SOTELMA, the government has adopted and will implement a sectoral policy statement on telecommunications calling for greater private sector participation. In this respect, the government will adopt a draft law on the telecommunications sector in July 1999, opening up the sector to competition. A regulatory framework for the sector will be adopted in September 1999 and its liberalization will occur with the granting of cellular telephony licenses to the private sector in November 1999. Finally, a call for bids for strategic participation in SOTELMA will be issued in September 2000.
27. The government is aware of the crucial importance of the cotton subsector and intends to implement the relevant measures identified in the technical audit of the subsector, which was completed at end-1998. In June 1999, it has adopted, in consultation with the staffs of the World Bank and the IMF, a detailed action plan for the implementation of measures pertaining to the (i) realization of substantial savings in the area of procurement policy and procedures, and the management of the Malian cotton company (CMDT), particularly with regard to contracting procedures, stock management, and overhead costs; (ii) improvement of CMDT's financial management and information systems, especially its accounting and management control systems; (iii) increase in capacity utilization of the ginning factories; (iv) establishment of a marketing department within the CMDT and the revision of its fiber-marketing policy; (v) undertaking of annual financial and management audits of the CMDT and of the Cotton Sector Stabilization Fund through an external auditing firm; (vi) strengthening of farmers' organizations and definition of the modalities for producers' participation in the capital of the CMDT, with a clearly defined exit strategy; (vii) improved sales pricing of cottonseed and derived products; and (viii) increased private sector participation in transport and road maintenance activities. The authorities' ultimate objective in implementing this action plan is to increase producer incomes and prepare the subsector for open competition. A new performance contract between the government, CMDT and the producers, covering the period 1999-2002 and including the elements of the action plan, will be signed by end-September 1999, and the independence of the monitoring committee of the performance contract will be ensured. Negotiations to raise the producer price of seed cotton will take place in the context of the performance contract. Finally, the authorities will ensure that the amounts borrowed from the Cotton Sector Stabilization Fund by the CMDT will be fully repaid before new loans are granted.
28. In the education sector, the authorities will define the costs of and establish a timetable for implementation of the sectoral development plan by end-September 1999. The aim of the ten-year education development program (PRODEC) is to raise the rate of primary education enrollment from 50 percent in 1998 to at least 61 percent in 2002. To achieve this objective, at least 700 teachers will be hired in 1999 and 2000. The government intends to continue its efforts to improve the quality of health services. To this end, it will implement the 1998-2002 health and social development program (PRODESS), which is the first segment of the ten-year (1998-2007) health and social development plan. The main objectives of the PRODESS are to raise the infant immunization rate from 45 percent in 1998 to 58 percent in 2000 and to increase the share of the population receiving primary health care from 40 percent in 1998 to 50 percent in 2000. With that in view, 45 new health centers will be created and 347 community health centers with be upgraded in 1999-2000, while a minimum of 200 agents will be hired annually, with assignments to outlying units receiving first priority. Steps will be taken to increase the share of health care in current government expenditure from 10¼ percent in 1998 to 11¼ percent in 2000, in line with the PRODESS financing requirements.
External sector and financing requirements
29. The medium-term balance of payments projections were based primarily on recent developments and the outlook for the cotton and gold sectors and other nontraditional export sectors. The projections were also based on a scenario of moderate import growth, the pursuit of sound macroeconomic policies, and the strengthening of structural reforms in the context of accelerated regional integration. In these circumstances, the external current account deficit (excluding official transfers) is expected to improve by 1 percentage point, to 8½ percent of GDP in 1999 and 2000. Of the financing requirements, estimated at CFAF 22½ billion for the April 1999-March 2000 period, CFAF 5½ billion will be covered by the World Bank and CFAF 17 billion by other multilateral and official bilateral assistance, including from the European Union and Mali,s traditional donors and creditors.
30. The policy of prudent external debt management will be pursued and the government of Mali will only have recourse to grants or concessional loans. To this end, the government will refrain from contracting or guaranteeing new external loans with a grant element of less than 35 percent, with the exception of nonconcessional loans within the ceiling set in Table 3, normal short-term import credits, and loans related to the rescheduling or refinancing of the external debt. In addition, all new loans contracted or guaranteed by the government will continue to be subject to the prior authorization of the Minister of Finance. The government will meet its public debt obligations on a timely basis and will accumulate no external or domestic payments arrears.
31. In the context of the HIPC Initiative, the achievement of the target of 200 percent for the ratio of the net present value (NPV) of the public external debt to exports of goods and nonfactor services, which was approved for Mali in September 1998 by the Executive Boards of the IMF and the World Bank, requires additional debt relief from bilateral creditors. The authorities have approached these creditors to secure the additional relief, which is estimated at US$6.4 million in NPV terms. The authorities also hope to benefit from any improvements that may be adopted regarding the debt relief provided under the HIPC Initiative.
32. The authorities will continue to actively participate in all initiatives to promote regional integration, especially in the areas of the harmonization of business law, the regional investment code, the development of the regional financial market, and the harmonization of external tariffs and indirect taxes.
33. In the area of economic and social statistics, the authorities have taken measures to improve the coverage and quality of the national accounts, for which they have requested technical assistance to help them in completing the update of the national accounts in accordance with the United Nations System of National Accounts 1993 (SNA93) guidelines by end-2000. They are also strengthening the monitoring of public investment and the compilation of balance of payments statistics, and ensuring the timely availability of monetary statistics. They will revitalize the role of the statistical coordination committee by taking legal steps against economic agents who fail to provide the required information with the required timeframes.
34. The government of Mali is aware of the risks associated with the Y2K problem. It has already conducted an awareness program and launched a program of corrective measures. The testing phase will end on September 30, 1999, giving the authorities three months to take the necessary corrective steps. All of the systems of the Malian banking system (including the BCEAO) are considered to be in compliance with the relevant standards.
Program Monitoring and Prior Actions
35. Program execution will be monitored through quarterly quantitative performance criteria and benchmarks, as indicated in Table 3, which include (a) a ceiling on net bank credit to the government; (b) the elimination of the government's stock of domestic payments arrears and the nonaccumulation of new arrears; (c) the nonaccumulation of new external payments arrears; (d) the freeze on the outstanding stock of short-term external borrowing (excluding normal import credits and loans related to debt-relief operations); and (e) a ceiling on nonconcessional external debt having a maturity of one year or longer contracted or guaranteed by the government and certain public enterprises. The above variables relating to end-September 1999 and end-March 2000 will constitute performance criteria. The performance criterion on the nonaccumulation of domestic and external payments arrears will be applied on a continuous basis. Moreover, quarterly financial indicators will be established for total government revenue, the wage bill, and the basic budget surplus (the latter being defined as the overall fiscal deficit, excluding grants and externally-financed investment expenditure).
36. To appropriately start the program, the authorities have taken the following steps: (i) the implementation of the single-rate VAT of 18 percent; (ii) the signing of an agreement in principle on the privatization of SONATAM; (iii) the divestiture of the government's minority shareholdings in SOMACO-SA, MALITAS, SMPC, and SEMA-SA; (iv) the adoption of a final action plan for the reform of the public enterprise sector; and (v) the adoption of an action plan for the cotton sector based on the technical audit of the sector. The program will also include a number of structural benchmarks and performance criteria, which are described in Table 4. To implement all the planned reforms, the government will strengthen the technical committee including representatives of the different ministries involved in the implementation of the program. It will take any other measures necessary to achieve the program objectives. The Fund and the government of Mali will also conduct a midterm review of Mali,s economic program, that is to be completed no later than December 31, 1999.
1Except for the zero percent rate, these rates will be capped in 1999 at 5 percent, 10 percent, and 25 percent, and fixed in 2000 at 5 percent, 10 percent, and 20 percent, respectively, with, in addition, a statistical tax of 1 percent as of January 2000.
2Organization for the Harmonization of Business Law in Africa.
3The authorities have overhauled the government flow of funds table (TOFE) to bring it into line with the WAEMU's harmonized TOFE project and to improve its transparency. They have also improved the monitoring of foreign-financed public investment, which resulted in a rise in the recorded level of this investment and that of the overall fiscal deficit (on a commitment basis and excluding grants) by one-half of a percentage point of GDP in 1998.
4For a detailed description, see the medium-term for policy framework paper 1999-2002, paragraphs 33 and 34.