Public Information Notice

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Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On July 18, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Islamic Republic of Mauritania.¹

Background

Since the last Article IV consultation, Mauritania has weathered unfavorable exogenous shocks with sound macroeconomic policies. The authorities have moved their poverty reduction strategy and reform agenda forward, in line with the recommendations of the Executive Board.

The drought had a major drag on growth in 2002, but macroeconomic performance remained relatively sound. A severe drought and weak demand for Mauritania's main exports led to a lower growth rate of 3.3 percent, down from 4 percent in 2001. Growth seems to have come essentially from construction and services, particularly trade, transport, and telecommunications. The impact of the drought on food prices and the depreciation of the ouguiya, especially against the euro, largely explain the pickup in the end-period inflation rate to 8.4 percent, while the 12-month average inflation rate remained close to its 4 percent target. Gross official reserves reached US$400 million at year-end, equivalent to 8.7 months of imports, in spite of the central bank's heavy sale of foreign exchange in the last quarter, which contributed to narrowing the spread (to about 6 percent) between the official and the parallel market rates.

The external current account deficit narrowed significantly in 2002 mainly due to the late receipt of the 2001 EU fishing license payment. With the weakening of the U.S. dollar, the ouguiya has depreciated by about 23 percent in nominal effective terms and by an estimated 16 percent in real effective terms from end December 2001 to May 2003.

The overall fiscal position in 2002 was in surplus, equivalent to 6.2 percent of GDP, also on account of the late fishing license payment. Taxes were marginally lower than budgeted on account of a shortfall in tax receipts on goods and services, while capital spending increased due to a marked improvement in the project execution rate. Social and poverty-related spending also increased to reach 10.6 percent of GDP, as compared with 8 percent of GDP in 2001. The fiscal surplus and the size of net external financing led to a substantial accumulation of government deposits in the banking system amounting to UM 37 billion or 13.5 percent of GDP, with total stock of government deposits reaching 44 percent of GDP.

Monetary policy remained prudent, with broad money growing at 9 percent and private sector credit at about 20 percent. The cautious fiscal stance contributed to keeping monetary policy relatively tight, as did the unsterilized heavy intervention of the central bank in the foreign exchange market in the last quarter of the year. The repo rate, the main interest rate of the BCM, remained constant at 11 percent, and the treasury bill rate at about 6 percent.

Preliminary data for the first half of 2003 are encouraging. The targeted real GDP growth for 2003 (5.4 percent) appears to be achievable. After picking up at end-2002, the inflation rate started to decline through May with a monthly average of 0.1 percent, thus rendering the end-year inflation target of 3.5 percent within reach. The overall fiscal deficit of the 2003 budget, is projected at 2.1 percent of GDP and would be more than financed by external borrowing at concessional terms, grants, and debt relief, leading to a significant accumulation of government deposits in the banking system. Tax revenues slightly exceeded projections, boosted by recent measures to improve tax collection, and government expenditure on social sector continued to increase as expected. The level of international reserves remained at very comfortable level of US$380 million by end June 2003. Ongoing reforms are proceeding as scheduled in the program.

The authorities have continued to manage their external debt prudently. Mauritania reached its completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in June 2002. External public debt, in net present value terms, at end-December 2002 was equivalent to 58 percent of GDP and 150 percent of exports. The authorities have already reached an agreement with most of the creditors.

Mauritania has implemented an impressive array of structural reforms over the last few years, the most important of which are: the unification of the VAT rates and elimination of exemptions except where they protect the poor; strengthening public expenditure management; stream lining the procurement code and revising the investment code to enhance its transparency; and completing an ambitious privatization program.

Executive Board Assessment

Executive Directors commended the authorities for the robust economic growth, macroeconomic stability, and progress in social indicators achieved despite the exogenous shocks experienced by the Mauritanian economy. In particular, substantial progress has been made in reducing poverty. Directors noted that this strong performance reflects the authorities' determined implementation of sound macroeconomic policies and far-reaching structural reforms in the context of a comprehensive country-owned poverty reduction strategy.

Directors observed that while Mauritania has made significant progress under a series of Poverty Reduction and Growth Facility-supported arrangements, the economy remains vulnerable to external shocks as well as to weaknesses in capacity and institutional development. They remarked that achieving the authorities' objective of reducing poverty under the new PRGF-supported program will require higher, sustained rates of economic growth—based on further efforts to reform and diversify the economy, improve governance and transparency, and strengthen institutions. Directors agreed that the Fund will continue to have an important role to play in Mauritania, providing technical assistance and policy advice.

Directors endorsed the authorities' medium-term fiscal strategy, which focuses on broadening the tax base and containing the growth of total expenditure, while accelerating pro-poor spending. They supported the emphasis on simplifying the tax system and strengthening tax administration, and noted that an improvement in public expenditure management will be essential for enhancing efficiency and ensuring the success of the poverty reduction strategy. Directors welcomed the authorities' commitment to implement the measures suggested in the fiscal Reports on the Observance of Standards and Codes, and suggested that the authorities consider extending the tracking now in place for HIPC-financed expenditures—which should help ensure better targeting of social spending—to all expenditures.

Directors commended the authorities for their commitment to maintaining low inflation. They remarked that continued success in this area would require active use of open market operations to manage bank liquidity. Directors welcomed the transfer of government deposits from commercial banks to the central bank as a means of enhancing liquidity control, but advised that it should be carefully executed to avoid adverse effects on bank liquidity and private sector credit.

Directors agreed that the authorities' efforts to promote investment, growth, and poverty reduction would be helped by strengthening the financial sector and deepening financial intermediation. In this context, they underscored the importance of ensuring the separation between banking and commercial activities and adhering to the credit concentration targets agreed between the central bank and the commercial banks. It will also be important to ensure the adequate capitalization of banks and encourage the diversification of banks' capital—including through foreign ownership.

Directors endorsed the authorities' commitment to maintaining a flexible exchange rate that will ensure competitiveness and the country's capacity to respond to external shocks. They noted, however, that this will require further improvements in the operation of the foreign exchange market, including the strict application of the banking law to reduce commercial banks' preferential treatment of certain customers, and more generally, steps to ensure the ready access by all to foreign exchange. Given the comfortable level of international reserves, a more active foreign exchange policy should contribute to further narrowing the spread between the parallel and official rates.

Directors underlined the importance of maintaining external debt sustainability over the medium term. They noted the authorities' intention to pursue a prudent debt strategy within a well-prioritized investment plan and to refrain from nonconcessional external borrowing. Given the sizable government deposits in the banking system, Directors saw a need to monitor closely and reduce—to the extent possible—the dependence on external borrowing.

Directors encouraged the authorities to intensify their efforts to improve transparency and governance in the public sector, which they considered vital for enhancing the environment for private investment and growth. Directors welcomed the authorities' intention to pursue a comprehensive public service reform, adopt, before the end of next year, an ethics code for public servants, and reform the judicial system. Also, some Directors suggested that the authorities adopt a financial disclosure law for government officials. In addition, the authorities were encouraged to start preparing, as soon as possible, the groundwork for the efficient and transparent use of potential oil revenues.

Directors welcomed the authorities' plan to address the weaknesses in the production and dissemination of economic and financial data. Future actions to improve statistics would benefit from the expertise of Africa Regional Technical Assistance Center and the Statistics Department, especially in the national accounts, balance of payments, and the consumer price index. Directors also encouraged the authorities to develop a set of social indicators that could be updated yearly through more frequent informal surveys.

The Islamic Republic of Mauritania: Selected Economic Indicators
		1999	2000	2001	2002
	(Percentage change; unless otherwise noted)
National income and prices
GDP at constant prices		5.2	5.2	4.0	3.3
Consumer price index (period average)		4.1	3.3	4.7	3.9
Consumer price index (end of period)		1.9	5.6	1.7	8.4
External sector
Exports, f.o.b. (in U.S. dollars)		-7.4	3.5	-1.8	-2.4
Imports, f.o.b. (in U.S. dollars)		-13.2	8.3	10.7	12.3
Export volume		5.6	-0.4	-5.5	-10.1
Import volume 1/		-10.9	6.8	13.2	10.3
Real effective exchange rate		1.1	-3.8	1.0	-7.0
Money and credit
Money and quasi-money 2/		5.1	12.8	17.3	8.9
Net foreign assets 2/		24.1	58.1	6.1	78.4
Net domestic assets 2/		-18.9	-41.5	7.9	-69.4
Domestic credit 2/		-10.1	-26.0	21.9	-60.1
Credit to the government 2/		-39.5	-62.5	-8.8	-95.5
Credit to the economy 2/		29.4	36.5	30.8	35.1
Interest rate 3/		10-11	8-9	8.0	8.0
	(In percent of GDP; unless otherwise noted)
Investment and savings
Investment 4/		18.6	32.1	34.5	33.0
Non-oil investment		17.1	28.6	26.6	21.9
National saving		22.1	29.4	23.9	27.9
Consolidated government operations
Revenue, excluding grants		27.1	25.3	20.6	37.6
Expenditure and net lending		25.0	29.6	26.1	31.4
Overall balance excluding grants 5/		2.1	-4.4	-5.5	6.2
External sector
Current account balance
Excluding official transfers and oil		-3.3	-5.8	-10.4	-0.6
Debt service ratio (as percent of exports)
Before rescheduling		36.4	32.2	28.5	30.1
After rescheduling		22.4	23.0	19.6	19.4
Gross official reserves (in months of imports)		5.9	6.9	6.8	8.7
Memorandum items:
Ouguiya/US$ exchange rate (period average)		209.5	240.0	254.3	271.7
Nominal GDP (in billions of ouguiyas)		206.5	229.4	251.3	269.1
Sources: Data provided by the Mauritanian authorities; and IMF staff estimates and projections.
1/ Does not include imports of machinery and equipment related to oil exploration.
2/ In percent of broad money at the beginning of the period.
3/ Interest rates on 12-months passbook savings.
4/ The sharp increase in 2000/2001 reflects new investment in the telecom sector, an increase
in government investment, and a rebound in SNIM investment.
5/ The increase in the deficit in 2000 is due mainly to the cash advance granted by the government to the telecom company Mauritel.
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.