IMF Executive Board Approves US$118.1 Million Three-Year Extended Credit Facility Arrangement for Mauritania

Press Release No. 10/89
March 15, 2010

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement totaling SDR 77.28 million (about US$118.1 million) for the Islamic Republic of Mauritania under the Extended Credit Facility (ECF).1 The approval makes an amount equivalent to SDR 11.04 million (about US$16.9 million) immediately available, with the remainder available in installments subject to semiannual reviews.

The 2010-2013 arrangement, equivalent to 120 percent of Mauritania’s SDR 64.4 million quota in the Fund, will support the Mauritanian authorities’ economic program. Mauritania’s economic growth and fiscal position have been weakened by the global fuel and food price crisis in 2007-08 and subsequent financial crisis and global recession in 2008-09. The effects of these external shocks were exacerbated by a domestic political crisis that led to a decline in aid flows, and the unexpected significant drop in oil production.

At the conclusion of the Executive Board’s discussion of Mauritania’s request, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:

“Economic performance in Mauritania deteriorated sharply in 2008-09 on the back of both domestic and external shocks. Real GDP declined and the fiscal position weakened. Inflation has remained under control, but the current account deficit is high at 12.7 percent of GDP, and international reserves only cover about two months of imports.

“The economic program prepared by Mauritania for 2010-12 focuses on addressing these challenges with policies to support sustained growth and poverty reduction. Fiscal consolidation will create more space for social and infrastructure spending, while reducing the vulnerability stemming from a large public debt. Together with a prudent monetary policy framework, this will help maintain low inflation and rebuild international reserves. Deepening financial intermediation and enhancing the business environment will support a broad-based private sector led-growth.

“The 2010 budget targets a deficit of 3.8 percent of non-oil GDP, down from 5.3 percent in 2009, through a combination of revenue and spending measures. The budget appropriately increases social and infrastructure spending while containing current spending.

“The authorities have decided to allow greater exchange rate flexibility to increase the effectiveness of monetary policy and facilitate adjustment to external shocks, while conserving scarce international reserves. Rising fuel and food prices may pose some risks to the inflation outlook, but the authorities’ monetary program for 2010 aims to be sufficiently firm to keep the inflation rate close to 5 percent.

“The authorities’ multi-pronged banking sector reform strategy would help strengthen the financial system and enhance intermediation. Decisive actions to make the business environment more attractive are also important to promote a broad-based private sector-led growth.

”Support from the international community will be essential to help Mauritania address its short and medium-term financing needs and strengthen external sustainability,” Mr. Portugal stated.

Recent Economic Developments

The global economic downturn and the drop in donor financing following the August 2008 military coup have weakened economic activity in Mauritania, through slower activity in the mining, fishing, and the construction sectors. Non-oil real GDP growth is estimated at -0.9 percent in 2009, down from 4.1 percent in 2008. Oil output continued to decline in 2009 and total GDP would contract by about 1 percent.

The fiscal position has also deteriorated. The basic non-oil fiscal deficit increased to 7.7 percent of non-oil GDP in 2008, up from 2.2 percent in 2007. Preliminary data suggest that spending adjustment efforts have not kept pace with declining revenue and the basic non-oil fiscal deficit, although lower, would still be high in 2009, reaching 5.3 percent of non-oil GDP. Faced with limited resources, the authorities have used the IMF’s recent SDR allocation to help close the fiscal financing gap.

Lower food and fuel prices and the normalization of donor relations have helped cushion the impact of the global economic slowdown on the external position. The current account deficit remains high at an estimated 12.7 percent in 2009, although down from 15.7 percent in 2008. The resumption of donor financing after the July 2009 election and the disbursement of financial compensation under the European Union (EU) fishing convention helped maintain the level of gross international reserves at end-December 2009 at 2.2 months of imports.

Inflation has remained in the low single digits. It fell rapidly to 0.9 percent year-on-year in September 2009, reflecting lower international fuel and food prices and a somewhat prudent monetary policy stance. However, international fuel and food prices are rising again, pushing up inflation to 5 percent year-on-year at end-December 2009. With slumping economic activity and a benign inflation outlook, the BCM lowered its policy rate from 12 to 9 percent in November 2009 but real interest rates remained positive. The effective exchange rate depreciated by 3 percent in nominal terms and 2 percent in real terms.

Program Summary

The authorities’ 2010-2012 economic program aims to sustain high growth and reduce poverty while safeguarding macroeconomic stability. To achieve these goals, the program focuses on the following key areas:

• Fiscal consolidation to reduce public debt, while creating more fiscal space for social and infrastructure spending

• Further enhancing the monetary policy framework to maintain low inflation and rebuild reserves to about 3 months of imports

• Deepening financial intermediation and enhancing the business environment in support of a broad-based private sector led-growth

• Strengthening social protection and safety nets.


Mauritania: Selected Economic and Financial Indicators, 2008–11

 
         
  Est.   Projections

 

2008   2009   2010 2011
 
             

National income and prices

           

GDP at constant prices

3.7   -1.1   4.6 5.2

Non-oil GDP at constant prices

4.1   -0.9   5.2 5.3

Oil production (1000 barrels per day)

12.1   10.7   7.5 7.5

GDP deflator

12.4   -6.2   8.0 2.7

Non-oil GDP deflator

13.0   -4.1   8.7 2.7

Consumer price index (period average)

7.3   2.2   4.8 4.8

Consumer price index (end of period)

3.9   5.0   4.6 5.1

External sector

           

Exports of goods, f.o.b. (percentage change in value)

27.5   -23.4   21.9 4.8

Of which: Non-oil

37.5   -20.8   28.8 4.7

Imports of goods, f.o.b. (percentage change in value)

21.7   -26.3   16.4 12.1

Current account balance (in percent of GDP)

-15.7   -12.7   -11.9 -16.5

Official reserves

           

Gross official reserves 1/

           

In millions of US dollars, end of period

194.9   237.9   247.6 288.6

In months of following year's imports excluding extractive industries

2.2   2.2   2.5 2.7

Money

           

Money and quasi-money (percentage change)

13.7   15.2   13.0 --

Credit to the private sector (percentage change)

23.6   3.9   11.4 --

Investment and savings

           

Gross investment (percentage of GDP)

27.8   25.2   31.1 32.7

Gross savings (percentage of GDP)

12.0   12.4   19.2 16.2

Consolidated government operations (percent of non-oil GDP)

           

Revenue and grants

25.9   26.7   27.8 25.8

Non-oil Revenue and grants

23.7   24.8   26.6 24.7

Non-oil Revenue

22.9   24.0   23.5 23.4

Oil revenue

2.2   1.8   1.2 1.1

Expenditure and net lending

32.8   32.0   32.8 30.2

Overall balance including grants

-7.0   -5.4   -5.0 -4.3

Basic non-oil balance; program definition 2/

-7.7   -5.3   -3.8 -1.6

External debt

           

Total external debt (in percent of GDP)

88.5   103.1   71.5 74.8

Of which: PPG external debt (in percent of GDP)

80.7   92.9   58.8 55.3

Memorandum items

           

Ouguiya/US$ exchange rate (end of period)

261.5   262.0   -- --

Nominal GDP (in billions of UM)

855   794   896 968

Nominal non-oil GDP (in billions of UM)

798   759   868 938

Nominal GDP (in millions of US dollars)

3,540   3,029   3,421 3,695

Price of oil (US$/barrel)

85.6   54.3   66.5 71.8

Population (in millions)

3.1   3.2   3.3 3.4

GDP per capita (in US dollars)

85.6   54.3   66.5 71.8
 

Sources: Mauritanian authorities; and IMF staff estimates and projections.

1/ Excluding the oil account.

2/ Defined as government non-oil revenue (excluding grants) minus government expenditure (excluding foreign-financed investment expenditure and interest on external debt).


1 The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.



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