January 26, 2001
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The Executive Board of the International Monetary Fund (IMF) today completed in principle the second review of Mauritania's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF)1 arrangement and approved in principle the disbursement of an amount equivalent to SDR 6.1 million (about US$8 million). A final decision by the IMF Executive Board is pending discussion of Mauritania's Poverty Reduction Strategy Paper (PRSP) by the World Bank Executive Board, which is expected to take place on February 6, 2001.
Mauritania's PRGF arrangement was approved on July 21, 1999 (see Press Release No. 99/32) in a total amount equivalent to SDR 42.5 million (about US$55 million), of which Mauritania has so far drawn SDR 12.1 million (about US$16 million).
The Executive Board also approved today the release of an amount equivalent to SDR 6.2 million (about US$8 million) in interim assistance under the Heavily Indebted Poor Countries Initiative.2 (See Press Release No. 00/9).
Following the Board discussion on Mauritania, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:
"The Mauritanian authorities are to be commended for the good record of economic performance under their medium-term program supported by the PRGF arrangement. Among the most noteworthy achievements in 2000 are strong economic growth, low inflation, a comfortable level of international reserves, tax reform, and the preparation of a credible poverty reduction strategy.
"However, the poverty situation remains very difficult, with half of the population living in poverty, and one third in extreme poverty. In 2000, the government prepared a strong, ambitious and truly country-owned PRSP, in a broad participatory process, with active participation of civil society, NGOs, elected officials and donors, including the IMF and the World Bank. The poverty reduction strategy is based on enhancing economic growth with an increased role for the private sector, efficiency and transparency of public resource management, and improvements in legal and judicial systems.
"Fiscal policy will be further eased in 2001, in line with the poverty reduction strategy, and will be financed by concessional external resources. The authorities' efforts should focus on bringing about greater efficiency and transparency in executing and monitoring spending in order to ensure that they reach their intended targets. Good public spending management is critical for ensuring efficiency, transparency and accountability of poverty-reducing spending and achieving the poverty reduction objectives.
"The government has implemented important tax reforms, including the unification of the value-added tax (VAT) rates, elimination of VAT exemptions, improvement in tax administration, and a reduction in the corporate tax rate. Further reduction and simplification of business taxation and particularly the elimination of ad hoc tax privileges, granted under the investment code, will be important steps in enhancing the transparency of the business environment.
"The authorities' decision to reduce the discount rate and the minimum rate on saving deposits is to be commended, and should lead to a reduction in lending rates. In addition, the recent reduction in the credit concentration ratios is a good step, but further reduction in these ratios to international standards is an important prudential measure, which should also permit better access to credit by small investors. Stronger banking supervision and increased competition in the banking sector will be top priorities in the near term. In addition, the foreign exchange market needs to be further liberalized, and a more realistic exchange rate policy needs to be adopted to enhance the diversification of Mauritania's export base.
"The Executive Board considers that the PRSP provides a sound basis for Fund concessional assistance to Mauritania," Mr. Aninat said.
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was replaced by the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It was intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.
PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½ year grace period on principal payments.
2 The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries that pursue IMF and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.
