Press Release: IMF Approves ESAF Loans for Mauritania
January 25, 1995The International Monetary Fund (IMF) today approved a series of loans for Mauritania over the next three years under the enhanced structural adjustment facility (ESAF)1 totaling the equivalent of SDR 42.75 million (about US$63 million) to support the Government's economic and financial reform program for 1995-97. The first loan, for 1995, equivalent to SDR 14.25 million (about US$21 million), will be disbursed in equal semi-annual installments, the first of which is available on January 31, 1995.
Mauritania's economic performance improved markedly following the resumption of the country's adjustment effort in October 1992, which was supported by a two-year ESAF program. In 1993, economic growth rose to an estimated 4.9 percent from 1.7 percent the previous year, while the average rate of inflation decelerated to 9.3 percent from 10.1 percent. Economic growth for 1994 is estimated to have been on target at 4.2 percent, and inflation to have fallen sharply to 3.7 percent. The deceleration of inflation through the steady pursuit of restrained fiscal and monetary policies has helped maintain external competitiveness. Problems of bank insolvency have been addressed and important progress was made in reducing Mauritania's large external arrears. The exchange system was liberalized, the exchange rate set at a broadly appropriate level, and structural reform measures implemented in public enterprises and agriculture. Nevertheless, the reduction in the external current account deficit, while substantial, fell short of target as a result of a sharp fall in world prices for Mauritania's leading exports. In addition, external arrears to commercial banks and official creditors were not fully eliminated, as envisaged, because of delays in completing negotiations with creditors.
Medium-Term Strategy and the 1995 Program
To address continuing structural weaknesses and ensure adequate growth with domestic and external balance, Mauritania has embarked on a three-year economic program for 1995-97, supported by the current three-year ESAF loans. Further structural measures will be introduced under the program, while fiscal and monetary restraint will be maintained in order to consolidate the gains already achieved in restoring price stability. Prudent credit policies and further progress towards market-determined interest rates will accompany fiscal restraint. Strict expenditure control will be observed, and, on the revenue front, measures will be introduced to improve the efficiency of the tax system.
Within the framework of the medium-term strategy, the 1995 program aims at a real GDP growth of 4.3 percent, an average inflation rate of 3.5 percent, and a reduction in the external current account deficit to 9.6 percent of GDP, excluding official transfers. To achieve these objectives, the program emphasizes the sustained pursuit of tight demand-management policies, the creation of a transparent and market-based foreign exchange system, and a deepening of structural reforms.
Structural Reform Policies
On the structural side, the program provides for a further strengthening of the tax system by expanding the tax base and reducing fraud, while lowering distortions and improving the tax system through the introduction of a value-added tax (VAT) on January 1, 1995. The Government will undertake a public expenditure review to establish priorities; redirect expenditure towards investment in human capital, operations, and maintenance; and identify areas of civil service reforms. The 1995 program foresees a further downsizing of the public enterprise sector through a privatization program, and improved monitoring of the remaining public enterprises. In the area of financial sector reform, the supervisory capacity of the Central Bank is being strengthened, and prudential regulations will be strictly enforced. Elsewhere, reforms will be undertaken in the fisheries sector to assure the efficient exploitation of Mauritania's rich fishing grounds, to increase its profitability, and to create employment opportunities. Commercial and investment codes, as well as the Government's legal and regulatory framework, will be revised to reduce impediments to private sector investment. These measures, in conjunction with further liberalization of the exchange and trade system and ongoing progress in reforming the banking system, are expected to reduce existing constraints to private sector investment and growth.
Addressing Social Costs
Sustained implementation of the reforms envisaged under the program are expected to enhance employment opportunities and contribute to higher living standards over the medium term. In addition, the Government is redirecting budgetary expenditure toward improving quality and access to health services, and to primary and technical education. To this end, an action program, based on the Government's strategy to combat poverty, will be launched with donor assistance in 1995, emphasizing income-generating activities and the protection of vulnerable groups. At the same time, the Government's labor-intensive public works program will be extended to five additional urban areas in 1995.
The Challenge Ahead
Given the progress already achieved in stabilizing the economy, key objectives for the coming three years include further external adjustment and strengthened economic growth performance. Over the medium term, substantial financing shortfalls remain which will necessitate further balance of payments adjustment. Success in sustaining the economic reform strategy also depends on continued receipt of additional concessional external assistance and debt relief.
Mauritania joined the IMF on September 10, 1963; its quota 2 is SDR 47.5 million (about US$70 million); and its outstanding use of IMF credit currently totals SDR 59 million (about US$87 million).
Sources: Mauritanian authorities; and IMF staff estimates and projections.
1. The ESAF is a concessional IMF lending facility for assisting low-income members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.