Press Release No. <a name="P16_75"></a>04/125

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for Mali in an amount equivalent SDR 9.33 million (about US$13.7 million) to support the government's economic program into 2007. The first disbursement of SDR 1.33 million (about US$1.9 million) under the arrangement will become available immediately.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are 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 PRGF-supported programs are 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.

Following the IMF Executive Board discussion, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"Sound macroeconomic policies and structural reforms under previous Fund-supported programs have boosted Mali's economic growth, raised average per capita income, and reduced inflation. The authorities' strong policy implementation record has helped Mali attain the completion point under the enhanced HIPC Initiative and led to a reduction in the country's debt burden and an increase in social spending. The external sector has improved, underpinned by the recovery of the cotton sector and the improved terms of trade for cotton and mining exports.

"In spite of the progress made, poverty remains widespread and the economy is still very vulnerable to exogenous shocks. To address these issues and assist Mali in progressing toward the Millennium Development Goals, the new three-year PRGF-supported program seeks to diversify the economy, bring the country to a higher growth path, maintain macroeconomic stability, and further strengthen social policies. The program is in line with the authorities' poverty reduction strategy. It focuses on pursuing fiscal consolidation by increasing government revenue, through an improvement in tax administration and policy, and strengthening public expenditure management. The access under the arrangement is set at 10 percent of quota under the Fund's policy on standardized access level for low-income countries with limited balance of payments needs but continued vulnerability to shocks.

"Mali has shown a strong performance in implementing its PRSP, as documented in the first annual PRSP progress report and the Joint Staff Assessment. Such a report provides a sound basis for concessional financial assistance. At the same time, there is a need to address the remaining weaknesses noted in that report, particularly with regard to better aligning budgetary allocation and PRSP priorities.

"The authorities' efforts to improve the business climate and enhance the economy's competitiveness are welcome. Of particular importance are the reform of the cotton sector, the privatization of key parastatal enterprises, the strengthening of the financial system, and the reform of the pension fund.

"To implement its ambitious program, Mali will remain heavily dependent on foreign financial assistance. To avoid an increase in the debt burden, the government should encourage donors to increase the grant element of external financing. The Fund also urges all bilateral and multilateral creditors to provide debt relief to Mali on the terms agreed at the time of the completion point under the enhanced HIPC Initiative. Last but not least, Mali should maintain its commendable record of macroeconomic policies and vigorous implementation of the structural reform agenda," Mr. Carstens said.

ANNEX Recent Economic Developments Mali's political and social situation has greatly improved over the past decade. Economic growth strengthened to an estimated 6 percent in 2003, compared with the 4.3 percent in 2002. The growth rate of non-mining real GDP rose sharply to 9 percent in 2003 from 2.3 percent in 2002. The consumer price index declined by 1.3 percent on average for 2003, while the external current account deficit is estimated to 6.5 percent of GDP in 2003 from 4.3 percent in 2002. Fiscal objectives were exceeded in 2003, with the overall deficit falling to 5.1 percent of GDP, compared with an objective of 8.2 percent. Government revenues rose to 16.6 percent of GDP in 2003 from 15.9 percent in 2002. Total expenditure fell from 23.2 percent of GDP in 2002 to 21.7 percent in 2003. Program summary Mali's economic reform program, which is supported by the new arrangement under the Poverty Reduction and Growth Facility, aims at ensuring continued macroeconomic stability and promote the strong , sustainable growth that is needed to make significant inroads on poverty. To meet those challenges, the government's strategy focuses on fiscal consolidation, and on structural policies to develop human resources and improve the climate for private-sector-led growth. The key macroeconomic objectives for 2004-07 are an annual real GDP growth of over 5 percent; annual inflation under 3 percent, and an external current account deficit of under 7 percent of GDP. The medium-term fiscal program seeks to support the authorities' poverty reduction strategy, while preserving macroeconomic stability, including debt sustainability. The revenue strategy aims at increasing tax revenue to 17 percent of GDP over time, in line with the West African Economic and Monetary Union (WAEMU) convergence criterion. Total expenditure is projected to remain stable, at slightly less than 25 percent of GDP, over 2004-07. The authorities also intend to continue strengthening the performance and competitiveness of the financial system. GDP is projected to grow by 4.7 percent during the first annual program under the new PRGF arrangement before rising to 6.1 percent in 2005. The overall fiscal deficit is projected to reach 7.5 percent of GDP in 2004. Total government revenue is projected to increase to 17 percent in 2004 from 16.6 percent of GDP in 2003 while total spending is projected to rise by 2.8 percent of GDP to 24.5 percent in 2004. Total expenditure on health and education would increase to 6.3 percent of GDP in 2004 from 5.9 percent in 2003. The agenda for the structural reforms in 2004 will focus on the implementation of measures to improve public sector management, continue the decentralization and devolution of public sector activities, to push ahead with the privatization program, and to reform the cotton sector. Mali became a member of the IMF on September 27, 1963. Its quota is SDR 93.30 million (about $136.5 million), and its outstanding use of IMF resources totals SDR 103.56 million (about US$151.5 million). Mali: Selected Economic and Financial Indicators, 2000-07                     2000 2001 2002 2003 2004 2005 2006 2007   Actual Est. Projections                     (Annual percentage change, unless otherwise indicated) National income and prices                 Real GDP -3.2 12.1 4.3 6.0 4.7 6.1 6.6 5.6 Nominal GDP (in billions of CFA francs) 1,899.2 2,212.6 2,329.9 2,540.5 2,699.3 2,925.1 3,180.1 3,440.7 GDP deflator 9.0 3.9 1.0 2.9 1.5 2.1 2.0 2.4 Consumer price index (annual average) -0.7 5.2 5.0 -1.3 2.5 2.5 2.5 2.5                   External sector                 Exports, f.o.b. 9.1 36.9 17.6 -10.0 10.9 5.5 13.0 3.5 Imports, f.o.b 13.1 27.7 -8.5 2.2 7.5 7.9 10.7 5.9 Export volume -1.2 24.9 31.7 -10.4 3.6 4.6 9.5 2.3 Of which: nonmining -7.5 -23.0 47.3 0.2 17.4 1.4 5.5 6.2 Import volume 1.7 29.8 -10.4 3.4 8.3 7.7 8.7 4.5 Terms of trade -0.7 2.3 -9.5 1.5 7.1 1.1 1.8 -0.1 Nominal effective exchange rate (average) -4.3 3.2 1.5 4.2 ... ... ... ... Real effective exchange rate (average) -7.4 3.7 4.9 1.2 ... ... ... ...                   Central government finance                 Total revenue -1.5 18.6 19.2 13.7 8.9 10.4 13.5 9.9 Total expenditure and net lending 1/ -0.5 14.2 16.0 2.0 19.8 9.0 9.6 8.3 Current expenditure 2.6 39.7 10.3 2.5 15.9 9.2 9.8 8.1 Capital expenditure and net lending 1/ -3.8 -10.3 24.6 1.4 25.0 8.8 9.4 8.6                   Money and credit                 Credit to the government 2/ -4.2 4.6 -1.8 -7.3 0.5 ... ... ... Credit to the rest of economy -2.4 19.0 21.6 17.4 9.1 ... ... ... Broad money (M2) 11.9 19.3 28.4 21.3 9.6 ... ... ... Velocity (GDP/M2) 4.7 4.0 3.7 3.3 3.2 ... ... ... Interest rate (in percent; end of period) 3/ 6.5 6.5 6.5 5.0 ... ... ... ...                                     Investment and saving                 Gross domestic investment 4/ 22.2 27.0 18.5 22.7 20.6 20.9 20.3 21.1 Government 7.8 6.1 7.0 6.3 7.7 7.8 7.9 8.0 Nongovernment 14.5 20.9 11.6 17.1 13.1 13.3 12.6 13.3 Gross domestic saving 11.6 17.6 18.5 19.0 17.1 17.1 17.1 17.2 Government 0.5 -0.6 0.0 1.4 0.4 0.6 1.3 1.6 Nongovernment 11.1 18.2 18.4 17.6 16.7 16.5 15.9 15.7                   Central government finance                 Total revenue 13.8 14.1 15.9 16.6 17.0 17.3 18.1 18.4 Total expenditure and net lending 1/ 21.5 21.1 23.2 21.7 24.5 24.6 24.8 24.8 Overall balance (payment order basis, including grants) -2.9 -3.2 -3.6 -0.7 -4.0 -4.5 -4.0 -3.7 Overall balance (payment order basis, excluding grants) -7.7 -7.0 -7.3 -5.1 -7.5 -7.3 -6.7 -6.5 Basic fiscal balance 5/ -0.6 -1.7 -1.3 -0.2 -1.2 -1.1 -0.6 -0.3 Basic fiscal balance 6/ -0.6 -0.2 0.1 1.1 -0.1 -0.1 0.4 0.6                   External sector                 Current external balance, including official transfers -9.6 -10.3 -3.0 -4.0 -4.3 -6.2 -6.1 -6.2 Current external balance, excluding official transfers -12.0 -12.5 -4.3 -6.5 -5.1 -6.3 -6.1 -6.2 Debt-service ratio 7/                 Before debt relief 12.8 9.9 10.0 10.5 10.5 10.8 9.3 9.9 After debt relief 12.2 6.3 6.3 6.0 6.4 6.9 5.8 6.6                     (In millions of US dollar, unless otherwise indicated) Overall balance of payments 39.2 -44.8 119.1 156.2 -99.7 -144.1 -110.0 -117.7 Gross international reserves 381.3 348.9 594.5 827.5 870.0 913.0 956.8 1,000.4 (in months of next year's imports) 8/ 3.8 4.2 6.4 7.1 7.0 6.7 6.6 6.4 Exports (in percent of GDP) 24.1 29.0 31.9 26.1 26.9 26.2 27.1 26.0 Imports (in percent of GDP) 34.7 38.3 32.0 30.5 40.1 40.0 30.4 30.0 U.S. dollar rate (end of period) 705.0 744.3 625.5 589.1 ... ... ... ... Sources: Malian authorities; and IMF estimates and projections. 1/ Including capital outlays financed through external project aid and transfers to the local authorities; data on payment order basis. 2/ Change in percent of broad money at the beginning of the period. 3/ End-of-period interest rate on the West African Monetary Union money market. 4/ Excluding PESAP; series might hence be slightly different from national accounts series on investment. 5/ Defined as total revenue (excluding grants) minus total expenditures and net lending (excluding foreign-financed investment). 6/ Defined as footnote 6 above, but also excluding HIPC Initiative-related expenditure and exceptional expenditure financed by World Bank credit. 7/ In percent of exports of goods and services.                 8/ Goods and services.