For more information, see Islamic Republic of Mauritania and the IMF

The following item is a Letter of Intent of the government of Mauritania, which describes the policies that Mauritania intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Mauritania, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.


Use the free Adobe Acrobat Reader to view MEFP Tables


Nouakchott, April 23, 2001

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. The government of Mauritania recently concluded its discussions with the International Monetary Fund (IMF) staff on the 2001 Article IV consultation and the third review under the PRGF arrangement. The attached memorandum of economic and financial policies (MEFP) takes stock of progress in implementing the program in 2000, and sets objectives and policies for 2001.

2. The government believes that, on the whole, program execution in 2000 was in line with the objectives. The quantitative performance criteria for end-December 2000 were met, except for the criteria on the overall budget balance and new non-concessional external borrowing. Significant progress was made in structural reforms, but a number of performance criteria and benchmarks were not met for technical reasons, related mainly to delays in finalizing the preparatory documents and studies, as explained in the attached memorandum. The government wishes to request waivers for the nonobservance of these criteria, and completion of the third review under the PRGF arrangement.

3. In the attached MEFP, the government sets targets for 2001, based on policies set forth in the Poverty Reduction Strategy Paper (PRSP). The government is convinced that the implementation of these policies will enable it to achieve the established objectives.

4. It is understood that the government will remain in contact with Fund staff and will consult with the IMF from time to time, on its own initiative or whenever the Managing Director so requests, regarding Mauritania's economic and financial policies.

Sincerely yours,


Sidi El Moktar Ould Nagy
Governor, Central Bank of Mauritania


Memorandum of Economic and Financial Policies
of the Government of Mauritania for 2001

I.  Recent Developments and Performance under the PRGF

1. The government of Mauritania believes that the preparation of the Poverty Reduction Strategy Paper (PRSP) in a broad participatory process was the highlight of 2000. The PRSP is based on four main pillars: accelerating growth; promoting sectors and areas that would benefit directly the poor; and developing human resources, and institutions based on good governance. The policies set out in the PRSP will guide policy setting in the context of PRGF-supported programs.

2. Macroeconomic performance held firm in 2000, resulting in a real GDP growth rate estimated at 5.1 percent and an average inflation rate (CPI) of 3.3 percent. The current account surplus (including official transfers) was 0.8 percent of GDP. Thanks in particular to capital inflows generated by the granting of the first cellular phone license to a foreign consortium (Mattel), the overall balance of payments surplus was US$13 million and gross official foreign reserves rose to US$283 million, equivalent to about 7 months of imports.

3. The overall budget deficit was at 4.5 percent of GDP, compared to a program target of 0.5 percent of GDP, largely owing to the shareholder advance that the government granted to Mauritel after consultation with Fund and Bank staff. Excluding Mauritel, the deficit was at 0.6 percent of GDP. Tax administration has improved as evidenced by the strong tax collection efforts made toward the end of the year. The monetary aggregates generally stayed within the program targets, with broad money and credit to the private sector growing slightly higher than projected. The gap between the official exchange rate and the parallel rate was held below 6 percent, and the ouguiya depreciated by about 11 percent against the dollar and by 3.5 percent against the euro. The real effective exchange rate remained virtually at its end-1999 level.

4. All the quantitative performance criteria for end-December 2000 were met, except for the criterion concerning non-concessional external borrowing, because of the loan from the Arab Monetary Fund (AMF), and the overall budget balance criterion, due to the impact of the Mauritel operation on the budget, for which a technical modification could have been requested before the end of 2000 (Table 1). However, in consultation with the Fund staff, it was decided to request a waiver for this criterion in the context of the third review.

5. Despite delays in implementing some structural reform measures, significant progress has been made in the following areas: the privatization of Mauritel; continued liberalization of foreign exchange, especially in relation to surrender requirements for export proceeds (including mineral exports); and tax system reform, including particularly the unification of the VAT rates and the elimination of VAT exemptions. However, a number of performance criteria and structural benchmarks were not met due to difficulties in completing the preparatory work on time, in view of the large number of structural conditions, and the limited administrative capacity particularly at a time when efforts were concentrated on the finalization of the PRSP (Table 2).

II.  Macroeconomic and Structural Policies for 2001 

6. The program targets for 2001 are to increase the GDP growth rate to 5.6 percent and to keep the inflation rate at 4 percent (compatible with an end-of-period inflation rate of 2.7 percent). The main sources of this growth are mining, fisheries, construction and public works, and transport and telecommunications. The current account deficit (including official transfers) is projected at 7.2 percent of GDP, mainly on account of a rebound in imports, and is expected to be financed by capital inflows, including Mauritel privatization proceeds, which will allow gross official reserves to be maintained at six months of imports. To reach these objectives and those set in the PRSP, the government intends to pursue the policies described below.

A.  Fiscal policy and structural reform in the fiscal area

7. Fiscal policy as reflected in the 2001 budget law is still appropriate. Projected fishing royalties from the agreement with the European Union remain conservative, although the government anticipates a significant improvement in the financial terms of this agreement. Fiscal policy will be eased, so that social spending and spending on poverty reduction can be significantly increased, in line with the priorities identified in the PRSP. The fiscal deficit, projected at 1.4 percent of GDP, will be financed by concessional external resources, thereby allowing the government to remain a net creditor to the banking sector. In this connection, the government will ensure that privatization proceeds are spent on infrastructure or poverty reduction. However, the government stands ready to adopt any measures required to maintain macroeconomic stability in case inflationary pressures emerge.

8. The government's priority in the fiscal area will be to strengthen government expenditure management, as underscored in the PRSP, to improve its effectiveness and ensure proper targeting. This governance issue is of critical importance to Mauritania, which is benefiting from debt relief under the enhanced HIPC Initiative. Tracking the use of resources allocated to poverty reduction requires a set of measures that can be fully implemented only in the medium term. Nonetheless, the government has already started putting in place monitoring and oversight mechanisms to ensure that the savings on debt service are used in poverty reduction programs. In particular, the government has already:

  • set up a committee to monitor the execution of projects financed under the enhanced HIPC Initiative. This committee will identify the use of these resources, project by project, in the social and poverty reduction areas, and will submit a quarterly report to the IMF and the Bank one month, at the latest, after the end of each quarter;

  • committed to developing a medium-term expenditure framework for priority sectors (education and health) by end-June 2001, with technical assistance from the World Bank. The government will also try to expand this framework to other priority sectors (infrastructure, rural and urban development) by year-end;

  • decided, as stated in the PRSP, to put in place the budget execution law, loi de règlement, for 2001 before submitting the 2003 budget law to Parliament. To this end, the draft law on clearing expenditures, loi d'apurement, prior to 2001 will be adopted by the Council of Ministers by end-September 2001. In addition, the government intends to strengthen the capacities of the Audit Office, cour des comptes, by supporting professional training, to enable it to better exercise its functions in supervising and monitoring government finances;

  • decided to establish in the medium term a transparent management of government finances, in particular by computerizing the expenditure chain to allow step-by-step monitoring. To this end, the government aims (as stated in the PRSP) at putting in place a number of preparatory measures, including establishing the nomenclature of required supporting documentation by June 2001, the computerization of the payroll in September 2001, and the preparation of the bidding document for the computerization of expenditure on goods and services before year-end.

9. Consistent with its commitments, the government brought the SNIM under the common tax law for VAT in the context of the 2001 budget law, except for capital equipment used exclusively in mining activities. However, given the non-deductibility of the VAT on diesel oil, which is used intensively in mining operations, the government has also decided to lower the rate of the Turnover Tax (TCA) from 10 percent to 9.5 percent by end-March 2001, to avoid any major increase in the tax burden on SNIM.

10. The government reiterates its commitment to amend the current investment code in consultation with the World Bank and the IMF staff in the context of the 2002 budget law. The amendments will ensure that all investment tax incentives are incorporated in the common tax regime to make investment incentives more transparent and improve the business sector environment for increased private sector participation. The government will inform companies currently requesting exemptions under the current code that they will be automatically subject to the common tax law beginning January 1, 2002, with all new tax breaks strictly limited to 2001, without retroactive effect or a grand fathering clause. Any additional cost of these tax incentives on the budget in 2001 will be offset by fiscal measures to ensure that the overall budget deficit remain on target.

B.  Monetary and banking sector policies

11. Monetary policy in 2001 is aimed at keeping low inflation while allowing sufficient credit to the private sector. In this regard, the growth of money supply is targeted at about 11.5 percent and credit to the economy at 18.2 percent. The central bank will take advantage of the recent development of new indirect monetary policy instruments, especially the introduction of the repo agreement and the short-term reverse repos facility in February 2001, to better manage liquidity and the conduct of monetary policy. Also, more frequent (bi-weekly and daily) liquidity forecasts and closer monitoring of reserve requirements and excess reserves of the banking system should improve liquidity management significantly.

12. Although the BCM has committed to reducing the concentration ratios in commercial banks, and in spite of the significant progress made in this area, this has proved more difficult than expected. The difficulty is due to the limited number of creditworthy borrowers in the economy, to the extent that compliance with the concentration limits set under the program could affect adversely economic growth. Furthermore, requesting an increase in commercial banks' capital cannot be justified solely on the grounds of reducing concentration limits. This said, the BCM decided to set more realistic targets in the context of individual programs, contrats programmes, to be signed with banks by end-June 2001, following a detailed assessment of their balance sheets. The BCM is determined to reinforce its banking supervision unit and has already requested technical assistance from the Fund.

13. In view of the importance of government deposits in commercial banks (30 percent of all deposits in 2000) and the problems these deposits could cause for liquidity management and monetary policy in general, the government intends to transfer gradually these deposits to the central bank. To avoid creating liquidity and solvency problems for some banks, this transfer will have to be completed in the medium term. This issue will be discussed with future Fund missions to agree on a transfer schedule. Meanwhile, the BCM will impose as of May 1, 2001 the same reserve requirement rates on government deposits as on private deposits. Furthermore, with the authorization for residents to open foreign currency deposit accounts beginning in 2001, the BCM will, in accordance with current regulations, impose beginning May 1, 2001 the same reserve requirement rate (in foreign exchange) on these deposits.

C.  Exchange rate policy

14. Consistent with the objective set in the PRSP, exchange rate policy should focus on maintaining external competitiveness to promote diversification of the economy and reduce its vulnerability to external shocks. Consequently, the BCM will ensure that the ouguiya does not appreciate in real terms on a sustained basis. Improvements will also be made in the operation of the foreign exchange market. The BCM undertakes to:

  • encourage banks' participation in the Extended Exchange Market (MCE) sessions. The BCM will not perform any exchange transactions with commercial banks outside these sessions, including for the purpose of travel allocations. The BCM will also ensure that the penalty on the open foreign exchange position is applied strictly, to force banks to come to the MCE more often to keep their foreign exchange positions within the authorized limits.

  • raise the ceiling on exchange bureaus' participation limits in the MCE from US$10,000 to US$20,000. At the same time, the ministry of finance will amend Circular No.14 to authorize exporters to move freely their export proceeds deposited in domiciliation accounts, while remaining in compliance with prevailing exchange regulations;

  • encourage SNIM to meet progressively its needs for ouguiya in the MCE through its commercial banks. The BCM will not then be the only source of foreign exchange on the market;

  • reduce, as a first step, the margin between its buying and selling rates from 1.5 percent to 1 percent and pursue its efforts to progressively reduce the gap between the official and the parallel market rates;

  • eliminate by end-June 2001 SNIM's remaining surrender requirements to the BCM on its repatriated export proceeds.

Furthermore, the government is committed to eliminate the statistical visa of the BCM by end-March 2001. The statistical monitoring of exports will be ensured by the Direction Générale des Douanes.

D.  External sector

15. The government is committed not to make any further drawings on its non-concessional loan contracted in 2000. In addition, the government will endeavor to obtain the best terms possible from the African Development Bank (AfDB) on SNIM's loan, given its importance for expanding SNIM's production capacity, and its implication for growth and poverty reduction--especially in light of the European Investment Bank (EIB) recent efforts to make its loan (which co-finances this project) concessional.

16. The government will pursue a prudent external debt policy and will not borrow on non-concessional terms. The BCM will also attempt to get debt relief from non-Paris club members on terms similar to those granted by the Paris club. In addition, the authorities are committed to service their external debt on a timely basis to avoid any accumulation of external arrears. Finally, the BCM intends to improve the management of its reserves to ensure a reasonable yield with minimum risk.

III.  Other Structural Reforms

17. Regarding structural reforms:

  • a number of preparatory steps have been taken regarding the privatization of SONELEC, including the adoption of the electricity code, the law on privatization, and the law on multisectoral regulation. The water code should be discussed with users before it can be finalized. With the assistance of the World Bank, the government expects the bidding document to be ready by end-June 2001, pre-qualification completed by end-September 2001, and privatization by end-December 2001.

  • significant progress has been made in reconciling customs data with the SGS. This monthly reconciliation process will be completed by end-April 2001.

  • the communal tax reform will be discussed in the context of the World Bank's urban development project, and in consultation with Fund staff.

  • the new government procurement code has been drafted and commented on by the World Bank. The revised code will be adopted by end-May 2001. The study on the reorganization of land transport has been completed and the decree for its implementation will be signed by April 2001.

IV.  Program Monitoring

18. The quantitative performance criteria for end-June 2001 are: (i) net domestic assets of the BCM; (ii) net official international reserves of the BCM (this replaces the performance criterion on net foreign assets of the BCM); (iii) net domestic financing of the budget (this replaces the previous performance criterion on the overall budget balance); (iv) medium- and long-term non-concessional external debt contracted or guaranteed by the government or the central bank; and (v) external payments arrears (Table 3). The performance criterion on non-accumulation of arrears on public or publicly guaranteed debt would still apply on a continuous basis. The performance criterion on arrears on medium- and long-term external public debt is proposed to be deleted since all arrears have been cleared. Quantitative indicators for these variables and for the monetary base and tax revenue have been set for end-September and end-December 2001. A detailed description of these criteria is included in the attached technical memorandum of understanding.

19. The structural performance criteria (Table 4) are: (i) the elimination of SNIM's surrender requirements of its repatriated export proceeds to the BCM by end-June 2001; (ii) the preparation of a medium-term expenditure framework for the priority sectors with the assistance of the World Bank by end-June 2001; (iii) the adoption by the Council of Ministers of the draft law on clearing expenditures, loi d'apurement, for fiscal years prior to 2001 by end-September; and (iv) the adoption by the Council of Ministers of the draft law amending the investment code by end-November 2001. Structural benchmarks have also been set for the completion of a nomenclature of required supporting documentation of expenditure (end-June 2001) and the signing of program contracts between the BCM and the commercial banks, providing a timetable for compliance with the risk concentration ratios (end-June 2001).

20. The fourth review under the PRGF arrangement is expected to be completed by end-October 2001, and will examine observance of end-June 2001 performance criteria. The remaining disbursements under the arrangement will depend on the completion of the fifth and sixth reviews, and on the observance of performance criteria that would be set during the fourth review.

Use the free Adobe Acrobat Reader to view MEFP Tables

Technical Memorandum of Understanding

1.  This memorandum sets out the definitions of the quantitative performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF). It also establishes the content and frequency of the data to be provided for monitoring the program. The government is defined to include only the central government and excludes the social security scheme.

I.  Performance Criteria

2.   Net official international reserves (NIR) of the Central Bank of Mauritania (BCM) is defined as the unencumbered (i.e., readily available) gross official reserves of the BCM less foreign liabilities of the BCM. For purposes of monitoring performance against the program target for NIR, valuation effects on the stock of gold holdings will be excluded, and gold holdings will be evaluated at the gold price in effect on December 31, 2000. Similarly, the U.S. dollar value of gross international reserves and foreign liabilities will be converted into ouguiya (UM) at the exchange rate of December 31, 2000. The exchange rates of the SDR and non-dollar currencies will be kept at their end-December 2000 levels. All required adjustments will be calculated at these program exchange rates.

3.   Net domestic assets (NDA) of the BCM are defined as reserve money minus net foreign assets of the BCM, adjusted for valuation changes arising from the difference between the program and the actual exchange rates.

4.   Net domestic financing of the budget (NDF) is defined as the sum of net bank and nonbank financing of the government. Net bank financing is the net credit to the government from the banking system (NCG), defined as claims on the government less deposits of the government with the banking system.

5.   The contracting or guaranteeing of nonconcessional external debt by the government and the Central Bank of Mauritania includes foreign currency debt contracted or guaranteed by the government or the Central Bank of Mauritania with a grant element (NPV discount relative to face value) of less than 35 percent, based on the currency- and maturity-specific discount rates reported by the OECD (commercial interest reference rates). This performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (August 24, 2000) as shown in the annex but also to commitments contracted or guaranteed for which value has not been received. Although this definition excludes borrowing by public enterprises (without government guarantee), such borrowing should be avoided except in exceptional circumstances (like in the case of SNIM), and after consultations with the Fund staff.

6.   External payments arrears are defined as the stock of external arrears on debt contracted or guaranteed by the government or the central bank, excluding debts subject to rescheduling or debt forgiveness. This performance criterion applies on a continuous basis.

II.  Quantitative benchmarks

7.   Reserve money is defined as the sum of: (i) currency in circulation (currency outside banks and commercial banks' cash in vaults); and (ii) deposits of commercial banks at the central bank. Required adjustments of bank foreign currency deposits at the central bank will be evaluated at the program exchange rates.

8.   Tax revenue is defined as the sum of all taxes on goods and services and income, and taxes on international trade.

III.  Program Adjusters

9.  The NIR, NDA, and NDF targets are defined based on the assumption of projected cumulative amounts of external cash debt service payments, program related financing (loans and grants), the amount of the fixed part of the fishing royalties from the European Union (EU), and privatization proceeds to the budget, as determined in the attached table.

10.  In cases where total external cash debt service payments exceed (fall short of) the target, the floor for NIR will be adjusted downward (upward) and the ceiling on NDA will be adjusted upward (downward) by the amount of any excess over (shortfall from) the target.

11.  In cases where program related financing or the fixed part of the fishing royalties from the EU exceeds (falls short of) their targets, the floor for NIR will be adjusted upward (downward) and the ceiling on NDA will be adjusted downward (upward) by the amount of any excess over (shortfall from) the targets. Any downward adjustment to NIR resulting from the shortfall in program related financing will be limited to US$10 million, and from the shortfall in fishing royalties to the U.S. dollar equivalent of € 5 million. Any upward adjustment to NDA resulting from the shortfall in program related financing will be limited to ouguiya equivalent of US$10 million, and from the shortfall in fishing royalties to ouguiya equivalent of € 5 million.

12.  In cases where government external cash debt service payments exceed (fall short of) the target, the ceiling on NDF will be adjusted upward (downward) by the amount of excess over (shortfall from) the target. NDF will also be adjusted downward (upward) by the amount of any excess (shortfall) of either program related financing or the fixed part of fishing royalties from the EU over (from) their respective targets. Any upward adjustment to NDF resulting from the shortfall in program related financing will be limited to the UM equivalent of US$10 million, and from the shortfall in fishing royalties to US dollar equivalent of € 5 million. In addition NDF will be adjusted downward (upward) by the amount of any excess (shortfall) of privatization proceeds over (from) the program target.

IV.  Provision of Information to the Fund

13.  To permit the monitoring of developments under the program, the Government will provide to Division D of the Middle Eastern Department the information summarized below:

  • Weekly data on every foreign exchange market session held at the Central Bank of Mauritania at the end of each week

  • Weekly data on BCM's gross foreign exchange reserves, within two weeks of the reference period

  • Data on treasury bills auctions following each auction.

  • Monthly monetary statistics and monetary data including the outstanding stock of treasury bills by holder, balances in the "comptes d'affectations spéciales" of the treasury at the central bank (by individual account), interest rates on central bank operations.

  • Monthly consumer price index, custom import data, iron ore and fish exports and data on SNIM monthly operations.

  • Monthly data on summary budget operations, revenues, expenditures, and financing items, including data on the execution of the investment budget, with details on the foreign financed part and the budgetary counterpart funds on which donor's conditions apply.

  • Monthly data on foreign grants and loans received by government and by public enterprises by creditor and by currency of disbursement.

  • Monthly data on external debt developments including arrears and rescheduling operations.

  • Monthly list of medium- and long-term public or publicly guaranteed external loans contracted during each month, identifying, for each loan: the creditor, the borrower, the amount and currency, the maturity and grace period, and interest rate arrangements.

  • Quarterly data on the outstanding stock of external debt by creditor, by debtor and by currency.

  • Quarterly, the report of the "Comité de Suivi"of HIPC related expenditures, within a maximum period of one month after the end of each quarter.

14.  The monthly and quarterly data listed above should be sent within a period of no more than five weeks after the end of the month or quarter reported, unless otherwise noted. Any revisions to previously reported data should be promptly communicated to the staff and adequately explained.
Mauritania: Adjustment Factors, March-December 20011
    March June Sept. Dec.

    (In millions of ouguiyas)
Net domestic assets of the central bank          
Projected external cash debt service payments2,3   2,990 8,641 11,598 17,611
Program related financing 2   4,585 4,585 4,585 8,529
Fixed part of fishing royalties from the European Union2   0 0 11,499 11,499
Net domestic financing of the budget          
Government cash external debt service payments2,3   1,742 4,537 6,443 9,271
Program related financing2   4,585 4,585 4,585 8,529
Fixed part of fishing royalties from the European Union2   0 0 11,499 11,499
Treasury's privatization proceeds   3,641 3,641 3,641 3,641

(In millions of U.S. dollars)

Net official international reserves of the central bank          
Projected external cash debt service payments3   11.9 34.3 46.0 69.8
Program related financing   18.2 18.2 18.2 33.8
Fixed part of fishing royalties from the European Union   0.0 0.0 45.6 45.6

Sources: Mauritanian authorities; and Fund staff estimates.

1Cumulative amounts from the beginning of the year.
2Converted into ouguiyas at the end 2000 exchange rate of UM 252.3 = US$1.
3These amounts take into consideration the interim relief granted in the context of the HIPC Initiative.


Definition of Debt Set Forth in No. 9 of the Guidelines

The definition of debt set forth in No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt reads as follows: (a) For the purpose of this guideline, the term "debt" will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to the obligor by the lender made 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, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the 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 agreement excluding those payments that cover the operation, repair or maintenance of the property. (b) Under the definition of debt set out in point 9(a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are 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.