Press Release No. 99/32

Press Release: IMF Approves ESAF Loan for Mauritania

July 21, 1999

The International Monetary Fund (IMF) today approved a three-year loan for Mauritania under the Enhanced Structural Adjustment Facility (ESAF),¹ equivalent to SDR 42.49 million (about US$56.53 million) to support the government's 1999-2002 economic program. The first annual loan will be disbursed in two equal installments, the first equivalent to SDR 6.07 million (about US$8.08 million) will be available immediately.

In commenting on the Executive Board's discussion of Mauritania, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, made the following statement:

"Directors commended the authorities for the significant progress made over the past few years in improving macroeconomic conditions and social indicators. They welcomed the policy response to the external shocks experienced in 1998, allowing Mauritania to maintain financial stability in the face of export shortfalls. While recognizing external vulnerabilities and the need to preserve macroeconomic stability, they considered that there was room for some gradual reduction of the overall fiscal surplus and of interest rates. Directors also underscored the need to take advantage of the favorable fiscal position to implement a program of fiscal reform, and to pursue a more active role of the private sector in the economy in order to stimulate economic growth and help in further reducing poverty.

"Directors stressed the importance of preserving government revenue by strengthening tax administration and reducing exemptions particularly in view of the expected decline in trade taxes. They welcomed the reform of direct taxation and further trade liberalization, both of which will contribute to private sector development and a more efficient allocation of resources. They also welcomed efforts underway to strengthen targeting and monitoring of government spending in social sectors. Directors were encouraged by the authorities' decision to further develop indirect monetary instruments, to continue to ensure the soundness of the banking system and the steps underway to promote competition among financial institutions.

"Directors commended the authorities for embarking on an ambitious and comprehensive structural reform program and encouraged a sustained effort. They noted that the proposed policies to foster private sector development, liberalize markets and promote competition are essential for accelerating the rate of growth and creating employment. In this regard, they emphasized the importance ofproceeding rapidly with the privatization of state enterprises, further liberalization of the foreign exchange market, and the improvement of the legal and regulatory framework.

"Directors reaffirmed their support to Mauritania's request for assistance under the HIPC Initiative, and considered that the approval of the ESAF should mark the beginning of the track record period leading to the completion point. They were also pleased to note the intended increase in education and health outlays, and the adoption of a Poverty Action Plan, which would benefit from budgetary resources freed by the prospective debt relief under the HIPC Initiative."

ANNEX

Program Summary
The Mauritanian authorities are embarking on an ambitious economic program aimed at raising growth rates and improving social conditions, with particular focus on poverty reduction. During the last decade, the Mauritanian government implemented a series of comprehensive medium-term adjustment programs with considerable success: savings and growth rates improved, inflation declined to single-digit levels, fiscal consolidation was achieved, and the external current account strengthened. Progress was also made in the areas of price liberalization, restructuring of the banking system and key public enterprises, and tax and trade reforms.

The medium-term strategy will focus on consolidating macroeconomic stability; deepening structural reforms; redefining the role of the government, while improving governance and increasing transparency; liberalizing markets and promoting greater competition; creating a supportive environment for private sector investment; and implementing a far-reaching social development agenda. The 1999 program² aims at raising GDP growth to 4.1%, reducing inflation to 4%, containing the current account deficit to 11.2% of GDP, and increasing official reserves to the equivalent of 5.1 months of imports of goods and nonfactor services.

Given the volatility of the external environment on the export sector, the government is targeting a budget surplus of UM 4.4 billion, or 2.2% of GDP in 1999, to achieve its macroeconomic objectives. Tax revenue is projected to decline from 15.7% of GDP in 1998 to 15.4% in 1999, mainly on account of the impact of the tariff reform on trade taxes and a lower projected growth rate.

Several key structural reforms will be implemented in the first year of the program, encompassing the exchange market system, the restructuring of the public sector, and the development of the rural sector. In addition, reforms are to be implemented in the financial sector in the determination of petroleum prices, and in the tax and tariff regime. The first phase of the direct tax reform, involving the minimum lump-sum tax and the general income tax, will be introduced in the budget law for 2000. The government will also implement in January 2000 the fourth stage of the trade liberalization program, lowering the maximum tariff rate to 20%.

Although social indicators have improved in the last decade, poverty is still widespread, affecting over 50% of the population, and health and education needs remain high. The program aims at significant further poverty reduction and the development of the country's human capital through an extensive range of actions whose priorities are to increase both enrollment rates and the quality of education, widen access to primary health care, extend the provision of water and electricity to rural areas, increase labor-intensive public works, and promote savings and loans cooperative schemes.

Mauritania joined the IMF on September 10, 1963, and its quota is SDR 64.4 million (about US$85.68 million). Its outstanding use of IMF financing currently totals SDR 74.96 million (about US$99.73 million).