IMF Executive Board Approves Three-Year PRGF Arrangement for US$24.2 Million for MauritaniaPress Release No. 06/288
December 18, 2006
The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Islamic Republic of Mauritania in an amount equivalent to SDR 16.1 million (about US$24.2 million) to support Mauritania's economic reform and poverty reduction agenda. The decision enables Mauritania to request immediately a disbursement in an amount equivalent to SDR 4.52 million (about US$6.8 million).
Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:
"Mauritania's economic performance has been strong since the beginning of 2006. Real GDP grew at a double-digit rate, mainly driven by the start of oil production. Inflation was kept under control, aided by sound macroeconomic policies, and the country's external position continued to strengthen. The pace of structural reforms has continued in recent months, most notably with the elimination of the remaining exchange restriction in October 2006.
"The authorities' new three-year PRGF-supported program seeks to consolidate the progress achieved under the Staff-Monitored Program toward macroeconomic stabilization, and aims at sustaining rapid growth, further reducing inflation, and building up official reserves. It also sets an ambitious structural reform agenda based on a new poverty reduction strategy covering 2006-10. The program envisages key reforms in the public and financial sectors with a view to promoting private sector development and economic diversification. These reforms, together with substantial increases in infrastructure and social spending, should help Mauritania achieve its ambitious poverty reduction objectives.
"Public sector reforms will focus on enhancing public expenditure management, including through better planning, control, and execution of the budget. The planned modernization of the public administration and reforms in the civil service should contribute to building capacity and improving governance. In addition to the creation of the oil fund, new legislative and institutional steps will be taken in 2007 to consolidate progress achieved toward a transparent and efficient management of oil revenue.
"Financial sector reforms will cover the foreign exchange market as well as legislative and regulatory steps to develop and strengthen the banking sector. The launching of foreign exchange auctions will facilitate the authorities' move toward a more flexible exchange rate policy.
"To ensure external sustainability, the authorities will rely exclusively on concessional external financing and continue to seek the settlement of debt issues with those creditors that have not yet provided debt relief under the HIPC Initiative," Mr. Portugal said.
* * *
The democratization process initiated by the transition authorities after the August 2005 regime change has remained on track and backed by domestic and international support. It will culminate in presidential elections in March 2007, following parliamentary and local elections in November and December 2006.
Since the beginning of 2006, Mauritania's economic performance has been fully satisfactory. All quantitative targets and structural benchmarks under the SMP (January-June 2006) were observed. Sound macroeconomic policies helped keep annualized inflation below 10 percent during the first half of the year, while international reserves reached the program level and the premium on the parallel foreign exchange market remained nil. Government revenues were boosted by strong tax collection, allowing for some increased spending within the program deficit target through June. The authorities maintained a prudent monetary stance and broad money supply growth remained significantly below program targets. Since June 2006, the authorities have maintained prudent fiscal and monetary policies and made further progress on the structural reform agenda, notably in the areas of public finance management and foreign exchange market liberalization.
Building on the positive SMP track record, the Mauritanian authorities have prepared a medium-term program, which is derived from the authorities' second Poverty Reduction Strategy Paper (PRSP), covering 2006-10. The objectives of the PRSP are broadly consistent with the Millennium Development Goals and aim at ensuring higher growth and economic stability; improving economic opportunities for the poor; developing human resources and access to basic social services; strengthening governance; and designing and implementing effective monitoring and evaluation systems. The PRSP targets a reduction in the incidence of poverty of 12 percentage points between 2004 and 2010.
The proposed PRGF-supported program will consolidate the progress achieved during the SMP toward economic stabilization while developing a far-reaching program of structural reforms that should foster private-sector led growth, diversification, and enhance the implementation of the poverty reduction agenda. Over the next three years, the program will aim to achieve real GDP growth of above 4 percent, gradually reduce inflation to below 5 percent, and bring official reserves to about three months of imports. It envisages ambitious reforms in the public and financial sectors.
The first year of the program foresees a set of fiscal measures, including tariff and tax policy reforms and a reduction in subsidies to public enterprises, which should result in a slight decrease in the non-oil primary deficit and a substantial increase in capital spending and poverty reducing expenditures. Public sector reforms will focus on strengthening the legislative framework for oil revenue management, and improving monitoring and control of budget execution. Steps toward civil service reform and strengthened governance will also be prepared. The program entails critical foreign exchange, monetary, and financial sector reform, including the launching of a new foreign exchange market and the adoption of new laws on the central bank and commercial banks in line with the recommendations resulting from the 2006 Financial Sector Assessment Program.
The program design mitigates in part the main risks to the program: lingering uncertainties about oil production prospects and the scheduled political change in May 2007. However, additional fiscal adjustment may be needed in 2008/09 if the declining trend in oil production is not reversed.