Chapter

VI Case Studies of Somalia and Mali

Author(s):
Saleh Nsouli, and Justin Zulu
Published Date:
April 1985
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While the last section examined in aggregate the performance under programs in Africa during 1980–81, this section provides case studies of two African countries, Somalia and Mali,10 which had Fund-supported programs during 1980–83. Somalia had a succession of three stand-by arrangements during this period, starting in 1980. Mali, by contrast, had two stand-by arrangements, starting in 1982. These two case studies illustrate specifically the differing factors that led to the emergence of imbalances, the policies set out under each of the programs, and the progress made in implementing the programs.

Somalia

Emergence of Imbalances

During the 1970s a series of internal and external developments adversely affected the performance of the Somali economy. A severe drought in 1974–75 led to a sharp drop in agricultural production and destroyed a large part of the livestock herd. Regional hostilities during 1977–78 resulted in an influx of refugees and the loss of the use of a major grazing area. As these events buffeted the Somali economy, government expenditures rose sharply and eventually led to a considerable widening of budgetary deficits that were financed by increased bank borrowing. The resulting expansion in net domestic credit began to exert considerable pressure on prices and the balance of payments. Economic growth came to a standstill in 1979.11 The rate of inflation more than doubled between 1978 and 1979, and the overall balance of payments plunged from a surplus in 1978 to a record deficit of US$99 million in 1979.

To contain mounting inflationary pressures and redress the deteriorating external position, the Somali authorities adopted a stabilization program at the beginning of 1980, supported by a one-year stand-by arrangement with the Fund in an amount equivalent to SDR 11.5 million. The program relied primarily on restrained fiscal and monetary policies, including an increase in interest rates. Agricultural producer prices were also raised to stimulate production.

Although the financial program’s credit and external debt ceilings were exceeded, financial management and economic performance improved somewhat during 1980. With a better overall budgetary position, the Government resorted less to bank financing. This contributed to a sharp deceleration in net domestic credit and domestic liquidity expansion. Economic activity expanded at a moderate pace, owing to a slight increase in agricultural output and a considerable rise in government employment. The rate of inflation, however, more than doubled again, fueled by pent-up excess demand from the preceding years and from higher domestic prices for imports entering via the parallel market, where the Somali shilling sold at less than half the official rate. A recovery of livestock exports and a higher level of official transfers resulted in a narrowing of the current account and the overall balance of payments deficits. Nevertheless, gross official international reserves dwindled to about a month’s cash imports—about half their level at the end of 1979—and Somalia’s external payments arrears almost tripled, reaching US$45 million.

The 1981–83 Adjustment Effort

The stabilization policies pursued in 1980 were followed by a major adjustment effort, which the Somali authorities launched in mid-1981. The effort, supported by two consecutive stand-by arrangements with the Fund (covering the period July 15, 1981 to January 14, 1984), aimed at stimulating domestic production, slowing the rate of inflation, and reaching a sustainable external sector position over the medium term. The adjustment effort over the course of the next two and a half years focused on both supply and demand-oriented policies, which were continuously modified to adapt to changing circumstances. This pragmatic approach enabled Somalia to make considerable progress toward reaching the goals of the adjustment program—even in the face of unexpected events, which adversely affected the economy. Among these events were an outbreak of regional hostilities, an embargo on Somalia’s livestock exports in its main export market, Saudi Arabia, and unfavorable weather conditions.

The Policies

As part of the adjustment effort, the Somali authorities adopted a realistic exchange rate policy and measures designed to enhance the profitability of export industries, promote import-competing activities, encourage the inflow of workers’ remittances through official channels, and reduce the reliance on administrative decisions to allocate scarce foreign exchange.

In mid-1981, the authorities devalued the Somali shilling by 50 percent in foreign currency terms for most foreign exchange transactions (with the main exception being goods designated as essential), discontinued issuing licenses for own-foreign-exchange (franco valuta) imports,12 liberalized private sector imports, and introduced external accounts denominated in U.S. dollars.

These measures were followed in mid-1982 by another devaluation of 17 percent on the export side and 34 percent on the import side in foreign currency terms. The year-old dual exchange rate system was unified, the control on private sector imports was further eased, and the Somali shilling was pegged to the SDR. Because the SDR basket was more representative of the pattern in Somalia’s international transactions than the U.S. dollar, pegging the shilling to the SDR was expected to help stabilize the nominal effective exchange rate.

During the second half of 1982, an unexpected private capital outflow began and was financed by workers’ remittances through the parallel market. To curb capital outflow and to encourage the inflow of workers’ remittances through official channels, a bonus plan was devised. This offered a 25 percent premium in foreign currency terms above the official exchange rate for workers’ remittances and for capital sent into the country by Somali nationals. Bonus plan participants also were granted priority for import licenses. Simultaneously, interest rates on external accounts denominated in U.S. dollars were set at internationally competitive levels, and the scope of external accounts that could be used for import payments was widened.

To avoid a gradual overvaluation of the Somali shilling and to obviate the need for large exchange rate changes, a managed float was adopted in mid-1983, under which the Somali shilling was pegged to the SDR adjusted for the relative rates of inflation between Somalia and the five countries in the SDR basket.

External sector policies were reinforced by liberalized pricing and marketing policies designed to encourage economic growth. At the outset of the adjustment effort, producer prices of major agricultural products were raised 17–50 percent. Producer prices of bananas were raised 158 percent. The monopsony enjoyed by the government agency dealing with cereal products was discontinued, and producers were allowed to market their produce freely in the market-place. The government agency retained its producer prices as minimum guaranteed prices. Moreover, the government marketing agency responsible for banana exports adopted a policy of passing on to producers through adjustments in the producer price and further redistributions of the agency’s profits the effects of exchange rate changes and movements in selling prices.

The poor performance of some public enterprises was due to lack of technical expertise, shortage of spare parts, deficiencies in management, excessive taxation, inadequate accounting procedures, rigid pricing policies, and inadequate labor performance. Taking these factors into consideration, the Government adopted measures to improve the productivity and profitability of public enterprises and decided to close those that were not economically viable and did not provide essential social services. In 1981, three such public enterprises were phased out of operation.

During the second half of 1982, an inter-ministerial commission was established to audit public enterprises. These audits were to be used as the basis for determining which enterprises should be phased out of operation. Audit results also were used to formulate recommendations to improve operations of enterprises deemed viable and to introduce uniform accounting procedures. The commission’s report was completed at the end of 1983, and its recommendations, along with tax reform for public enterprises that had been postponed until this report was completed, were to be implemented in phases.

Changes continued in 1983, when the Government transformed its banana export agency to a semipublic enterprise by transferring the majority of the agency’s shares to the private sector. The principle of economic pricing was adopted. With the Government’s decision that enterprises sell at prices that reflected production costs as well as an adequate profit margin, controlled input and output prices of public enterprises were discontinued. To strengthen managerial capabilities, boards of directors were established and empowered to make decisions for industrial enterprises. Moreover, management and accounting training was provided to the staffs of these enterprises. To increase labor productivity, the Government set up a system of production incentives for laborers in several enterprises.

Considerable progress was also made during the 1981–83 adjustment program in strengthening the development planning process. The Five-Year Development Plan (1982–86), completed late in 1982, incorporated for the first time a macroeconomic framework. In 1983 the Government prepared, in consultation with the World Bank and the Fund, a medium-term recovery program for 1984–86. The program, which was presented at a Consultative Group Meeting organized by the World Bank in October 1983, included a phased program of measures to improve resource mobilization, allocation, and utilization; a macroeconomic framework; and a core public investment program. The core investment program was designed to direct available resources to development activities with the greatest promise of augmenting domestic commodity production, increasing exports, and replacing imports.

While carrying out the adjustment program’s supply-oriented policies, the Government tightened financial policies and succeeded in containing the growth of aggregate demand. Fiscal policy during 1981–83 was marked by an austere expenditure policy carried out in tandem with efforts to increase government revenue. The overall deficit of the Central Government was reduced from 9 percent of gross domestic product in 1980 to about 3 percent in 1983. The current budget deficit moved from 3 percent in 1980 to 1 percent in 1983. The rate of growth of domestic bank financing of the deficit was reduced from 55 percent in 1980 to 18 percent in 1981, and in 1982 and 1983 the Government was able to reduce its net indebtedness to the banking system by about 7 percent and 14 percent, respectively.

During 1981–83, domestic revenues increased at an annual average rate of about 42 percent. This was due primarily to a number of new tax measures to expand the revenue base and enhance the elasticity of the tax system. These included a 25 percent tax on livestock exports,13 changes in custom valuation procedures, the elimination of exemptions on import duties for some public and private enterprises, and the conversion of major specific excises to an ad valorem basis. Tax collection procedures were improved, penalties on delinquent taxes were increased, and the practice of negotiating tax liabilities under the concordato procedure was significantly reduced. Simultaneously, budgetary grants more than doubled. An oil grant from Saudi Arabia began in early 1982 and continued through the end of 1983, accounting for 16 percent of receipts in 1982 and 11 percent in 1983. Project grants, however, declined sharply in 1983.

By contrast, the annual growth rate of total expenditure was confined during 1981–83 to about 28 percent. In real terms, this implied a substantial decline in the level of expenditures—the result of austerity measures and strengthened expenditure control. The Government recruited fewer new employees, did not grant cost-of-living salary adjustments to civil servants,14 limited administrative and other expenditures, and reduced capital outlays. The Government limited capital outlays, pending completion of the document outlining the 1984–86 public investment program. Although it did not have a significant impact during this period, a major decision was taken in August 1983 to discontinue the policy of guaranteed employment for high school graduates. A study of the civil service salary structure was initiated. In addition to surveying the size and structure of the civil service, the study was to provide information for a reorganization that would lead to a restructuring of the ranks and reward more productive government employees.

As the budgetary position improved, the authorities were able to exercise more flexibility in conducting monetary policy. The rate of growth in domestic credit was reduced from 31 percent in 1980 to 5 percent in 1983. This deceleration was due to net domestic credit to government increasing by only 18 percent in 1981 (about one-third the 1980 rate) and contracting in 1982 and 1983 by 7 percent and 14 percent, respectively. Credit to the private sector (including public enterprises) was allowed to expand by about 18 percent in 1983, compared with 15 percent in 1980. To encourage private sector economic activity, credit to the private sector proper (excluding public enterprises), which had declined by 5 percent in 1980, was allowed to expand more than fivefold by the end of 1983. Production and export activities were assigned priority for credit.

The rate of expansion in domestic liquidity was reduced from 20 percent in 1980 to 16 percent in 1982, and to 8 percent in 1983. The decline in domestic liquidity in 1983 was deemed important not only to reduce excess demand pressures but to limit the monetary balances affecting capital outflows.

Table 5.Somalia: Selected Economic and Financial Indicators, 1980–83
1980198119821983
(Annual percentage changes)
National income and prices
GDP (at constant prices)12.14.910.94.1
Consumer price index59.044.622.636.4
External sector
Exports, f.o.b. (in millions of U.S. dollars)25.5–14.320.2–27.0
Imports, c.i.f. (in millions of U.S. dollars)17.0– 8.314.7– 7.0
Change in the nominal import-weighted effective exchange rate0.3– 5.0–27.9–11.7
Central government budget
Revenue (excluding grants)– 6.959.322.054.1
Total receipts5.141.841.440.4
Total expenditure– 3.818.844.222.4
Money and credit
Domestic credit31.217.210.54.7
Credit to government54.518.3– 6.7–14.0
Credit to private sector 214.616.127.318.2
Money and quasi-money20.230.815.77.5
(Percent of GDP1)
Overall budget deficit
Including grants9.15.05.63.2
Excluding grants12.67.19.35.8
Current account deficit
Adjusted 36.32.93.02.3
Unadjusted6.34.46.55.9
Current account deficit (excluding grants)
Adjusted 313.07.56.54.7
Unadjusted13.011.214.411.8
Overall balance of payments deficit
Adjusted 31.30.41.01.5
Unadjusted1.30.62.23.7
External debt
Adjusted 332.327.223.820.0
Unadjusted32.354.457.655.9
Debt service ratio 44.614.212.216.5
(Million U.S. dollars)
External payments arrears 544.615.5
Sources: Data provided by the Somali authorities; and Fund staff estimates.

GDP data are based on Fund staff estimates derived from 1978 base using estimates of real GDP growth and the CPI as a proxy for the GDP deflator.

Includes public enterprises.

Adjusted for exchange rate changes. A constant exchange rate is used to illustrate the change in positions on a year-to-year basis.

As a percentage of exports of goods and services.

Does not include amounts in respect of Italian suppliers’ credits, which were under negotiation.

Sources: Data provided by the Somali authorities; and Fund staff estimates.

GDP data are based on Fund staff estimates derived from 1978 base using estimates of real GDP growth and the CPI as a proxy for the GDP deflator.

Includes public enterprises.

Adjusted for exchange rate changes. A constant exchange rate is used to illustrate the change in positions on a year-to-year basis.

As a percentage of exports of goods and services.

Does not include amounts in respect of Italian suppliers’ credits, which were under negotiation.

During 1981–83 a flexible interest rate policy was followed to improve financial intermediation, encourage domestic savings, increase emigrants’ remittances, and discourage capital outflows. Under this policy, the structure of interest rates was twice revised upward. In another effort to improve the process of financial intermediation domestically and to encourage the inflow of remittances through official channels, in mid-1983 the state-owned commercial bank’s monopoly was abolished, and a policy decision was made to permit branches of foreign banks to operate in Somalia.

The Objectives

The policies that Somalia followed during its adjustment program contributed to an improvement in economic conditions. The improvement is all the more impressive if account is taken of the renewed regional hostilities, poor weather conditions during 1983, and, that same year, a ban on Somalia’s cattle in its main export market.

The estimated growth of real GDP, which had averaged about 1 percent a year during 1979–80, increased to about 5 percent in 1981 and nearly reached 11 percent in 1982. Despite worsening weather, economic growth continued at a sustainable rate of 4 percent during 1983. Agricultural production particularly benefited during the adjustment program from the changes in relative prices resulting from devaluations and liberalized pricing and marketing policies.

The rate of inflation fell sharply. At the beginning of the adjustment program, following the devaluation in mid-1981, prices started to decline, so that the annual rate of inflation fell to 45 percent in 1981 from 59 percent in 1980. Such progress is all the more remarkable when the high rate of inflation that prevailed in the first half of the year is taken into account. The following year, inflation was halved. In 1983, unfavorable weather and a shortfall in foreign exchange receipts (because of the ban on Somali cattle) took a toll on supply conditions, and the inflation rate rose to 36 percent.

In the external sector, the current account deficit (adjusted for exchange rate changes) declined from 6 percent of GDP in 1980 to 2 percent of GDP in 1983. In 1981, the current account deficit narrowed sharply, and the overall balance of payments deficit was less than half of that recorded in 1980. This improved external position was mainly due to lower-than-expected imports, reflecting the record agricultural harvest and sharply curtailed government outlays. This improvement is especially impressive in light of decreased exports that same year. Livestock exports fell somewhat, because of shipping difficulties and a temporary work stoppage at the season’s peak. The 1981 average for bananas and other exports declined as well. While exports of these latter products declined in the first half of the year, their export levels picked up during the second half of the year due to improved transportation facilities and increased producer prices.

In 1982, exports rebounded, growing by about 20 percent. This increase was seen in the volumes of most export products. Imports, however, climbed by 15 percent, but this was due, significantly, to more aid in-kind. The greater-than-anticipated aid in-kind and better agricultural production also affected the level of foreign exchange imports, which were substantially lower than projected. The current account deficit (adjusted for exchange rate changes) as a percentage of GDP held at about the same level as in 1981. Excluding grants, however, the ratio declined from 7.5 percent of GDP in 1981 to 6.5 percent in 1982. The overall balance of payments deficit of US$44 million, however, was somewhat higher than anticipated, owing to a large extent, to capital outflows.

Despite the cattle ban, in 1983 the deficit on the trade balance remained at about the same level as in 1982. Cattle exports declined by more than 70 percent in 1983, causing total livestock export proceeds to fall by about 32 percent. This drop, however, was almost fully offset by a contraction in imports, accounted for mostly by imports related to the public investment program.

As the scope for using external accounts to finance imports widened, private capital outflows financed by private transfers through the parallel market slowed down. Nevertheless, the surplus on the capital account dropped, owing to lower loan disbursements on projects. As a consequence, the overall 1983 balance of payments deficit reached US$93 million.

In accordance with the objectives of the adjustment program, identified external payments arrears, which had amounted to US$45 million at the end of 1980, were either rescheduled or repaid by the end of 1982.15 Furthermore, Somalia did not contract nonconcessional loans during the program period, and, by securing debt relief, succeeded in confining the increase in its debt service ratio from 5 percent in 1980 to 17 percent in 1983.

Conclusion

By undertaking a major adjustment effort during 1981–83 that involved supply- and demand-oriented measures, Somalia—despite unexpected exogenous developments—was able to make considerable progress in reestablishing domestic and external financial stability. Even in the face of renewed regional hostilities, unfavorable weather conditions, and an embargo on cattle in its major export market, the Somali authorities continued with their adjustment efforts and, when appropriate, modified their policies in an attempt to attain their adjustment objectives. The contribution of these efforts to structural adjustment in Somalia can be expected to be fully realized over the medium term. In this regard, the continued pursuit of appropriate economic and financial policies, the implementation of an appropriate public investment program, the elimination of remaining institutional bottlenecks, and the availability of external financial assistance at concessional terms will determine to a large extent the medium-term prospects of the Somali economy and thus the attainment of a sustainable rate of economic growth under conditions of financial stability.

Mali

Emergence of Imbalances

For two decades after independence in 1960, the Malian authorities tried to promote economic development through ambitious public investment programs, financed externally, and state intervention in virtually all economic spheres. In the agricultural sector, services and inputs were subsidized, and producer prices for cereals and other crops were kept lower than in neighboring countries. As a result of inadequate official pricing policies, a large volume of cereal production was sold on parallel markets.

The public enterprise sector (52 enterprises) acquired a dominant role, covering virtually all areas of economic activity. Public enterprises suffered from an official pricing policy for their goods and services, which together with overstaffing and weakness in their financial structure and management, resulted in substantial annual losses. These losses were financed mostly by credit from the Development Bank of Mali up to 1977. Thereafter, when bank financing of current operational losses was curtailed, the losses were partly financed by equity capital, and partly by an accumulation of arrears. The pricing policy was intended to contain the rise in the urban cost of living in order to avoid wage demands. The authorities’ welfare orientation involved a high level of public expenditure for scholarships and a policy of guaranteed government employment for university graduates, which was reflected in rising budget deficits.

Given the irregular inflow of external budgetary assistance and the statutory limits on central bank credit, the treasury accumulated a substantial volume of domestic and external payments arrears. The effects of these policies were compounded by frequent drought conditions and a deterioration in the terms of trade, following the steep increases in oil prices starting in 1973. Thus, during these two decades serious structural and financial imbalances emerged. By 1980, these imbalances were reflected in a decline in economic activity, large annual losses of the public enterprise sector, a high rate of inflation, a large and unsustainable balance of payments deficit, and domestic and external payments arrears amounting to nearly US$70 million. The consolidated budgetary deficit before grants (excluding foreign-financed public investment) reached 4 percent of GDP, but the rate of growth of domestic credit remained moderate, partly because of the accumulation of arrears.

The seriousness of the economic and financial difficulties led the authorities to review their policies during 1980. There was a recognition that solutions to the structural difficulties required comprehensive reforms involving all sectors of the economy. The authorities sought to promote a better balance among the roles of the government, the public and mixed enterprises, and the private sector in order to enhance resource allocation, stimulate production, and reduce the financial disequilibria. Accordingly, they adopted a number of initial measures in 1980 and 1981.

In the agricultural sector, official producer prices were increased, cereal marketing liberalized, and steps were taken to restructure the cereal marketing agency (OPAM). Between 1978/79 and 1980/81, producer prices were raised by 75 percent for cereals, 33 percent for groundnuts, and 21 percent for cotton. Nevertheless, agricultural production and overall economic activity declined in 1981, in large part because of insufficient rainfall.

In the public enterprise sector, the authorities closed down a number of enterprises, opened others to private participation, curtailed distribution activities of the largest state enterprise, the import-export agency (SOMIEX), and increased retail prices of essential goods by 10 to 30 percent and of petroleum products by as much as 125 percent. As a result, the aggregate operating losses of the major enterprises declined by one-third in 1981 to about US$20 million, or 1.7 percent of GDP.

At the same time, efforts to improve fiscal performance met with success. These efforts included considerable tightening in tax administration, increases in indirect taxes, sharp cuts in scholarships, a wage freeze, and the containment of maintenance expenditures. Although the consolidated budget deficit declined to 1.9 percent of GDP in 1981, the deficit exceeded available financial resources, and arrears continued to accumulate. Credit grew at a higher rate than in 1980, because the rate of net credit to the government rose substantially.

In the circumstances, although the rate of inflation declined, the current account deficit of the balance of payments (excluding official transfers) rose as a proportion of GDP and the overall balance of payments deficit widened from US$33 million in 1980 (2.3 percent of GDP) to US$37 million in 1981 (3.1 percent of GDP). These deficits were financed through the overdraft facilities of the operations account with the French treasury, maintained since 1968, which guaranteed the free conversion of the Malian franc into the French franc. Both external debt and the debt service ratio rose sharply, reaching about 80 percent of GDP and 14 percent of exports, respectively.

The 1982–83 Adjustment Effort

Against this background, the authorities embarked upon two successive adjustment programs, supported by the use of Fund resources, to reduce, over the medium term, the domestic and external imbalances. The first economic and financial program covered calendar 1982 and was supported by a stand-by arrangement in the amount of SDR 30.4 million between May 1982 and May 1983. The second program covered the balance of 1983 and calendar 1984 and was supported by a stand-by arrangement providing SDR 40.5 million with a disbursement period of 18 months ending May 1985.

Both programs aimed at promoting sustained economic growth, reducing inflationary pressures, and narrowing the external payments imbalances to a level consistent with a sustainable flow of external assistance. Both programs combined demand- and supply-oriented policies. On the demand side, the programs involved reducing budgetary deficits, containing credit growth, and following an austere income policy. On the supply side, the emphasis was on fostering an increase in the scope of the private sector in the economy, reorganizing key public enterprises, while increasing their efficiency, and reducing price and marketing distortions. To normalize the operations of Mali’s financial system, which was adversely affecting production, arrears were to be reduced and finally eliminated by the end of the second stand-by period, and the Postal Checking System was to be restructured to function properly.

The Objectives

Most of the objectives under the two programs were met during 1982 and 1983. Following two years of declining economic activity, a recovery began in 1982. That year, GDP grew by 1.8 percent. The reason for this growth was substantially increased cereal production and trade, which benefited from favorable weather during the 1981/82 crop year, and a number of policy reforms. Higher agricultural production allowed for some decline in food imports and contributed to lower inflation. The index of food prices rose by 3.7 percent in 1982, compared with 12.7 percent the previous year. In 1983, however, a severe drought dealt a serious blow to cereal and groundnut production. Nevertheless, owing to a record cotton harvest, overall real GDP remained stable. Restrictive incomes and fiscal policy held consumption below GDP growth in 1982 and 1983, contributing to an improved savings ratio. Consequently, the resource gap at 23 percent of GDP in 1981, narrowed to an average of 19 percent in 1982 and 1983.

External payments imbalances were reduced in 1982 and 1983, reflecting the impact of a number of policy measures adopted under the programs. They included incentives for agricultural production; restraint on demand, with a corresponding slowdown of import expenditure; containment of debt service payments through a cautious borrowing policy; and the authorities’ effort to renegotiate a portion of Mali’s external debt. The deficit on the current account, excluding grants, narrowed from 20.3 percent of GDP in 1981 to 18.5 percent in 1982. With a sizable increase in concessional loans and refinancing of external debt obligations, the overall balance of payments deficit declined sharply in 1982 to US$4 million, compared with a deficit of US$37 million in 1981. After the strong performance of 1982, the current account deficit, excluding grants, rose as a ratio of GDP in 1983 because of the exceptional purchase of an airplane; excluding such a purchase, it declined. However, with a rising surplus on the capital account, the overall balance turned into a surplus of US$8 million, or 1 percent of GDP.

The reduction of domestic and external arrears exceeded targets. During 1982 and 1983, domestic arrears were reduced by 88 percent and are expected to be fully repaid by the end of 1984; external arrears were reduced by 60 percent with a further 40 percent reduction through cash payments envisaged for 1984.

The Policies

The achievement of program targets is largely due to the effective implementation of reform measures. In the agricultural sector, substantial progress was made toward reducing pricing and market distortions. A number of policy changes and reforms were made, some with technical assistance from the World Bank. These included increases in administered producer prices and the substantial liberalization of cereal marketing in early 1982, which involved reducing OPAM’s responsibilities. Gradual increases in producer prices, maintained through 1983, raised incentives for producers and reduced the cereal price gap between Mali and its neighbors. At the same time, official cereal retail prices were increased, bringing them closer to market retail prices. OPAM cut its operating costs and succeeded in reducing its deficit from CFAF 2.3 billion in 1981 to CFAF 1.6 billion in 1982 and CFAF 1.4 billion in 1983.16

Other measures in the agricultural sector included the liberalization of groundnut marketing, the liquidation of the farm input supply agency, and the reform of production and marketing in the cotton sector. SOMIEX stopped absorbing cotton export profits to cover its losses in internal distribution. Instead, the proceeds were used to establish a price stabilization fund for cotton producers. The organization and finances of 26 semiautonomous rural development agencies, which incorporate large numbers of smallholders, were reviewed in depth.

Table 6.Mali: Selected Economic and Financial Indicators, 1980–83
1980198119821983
(Annual percentage changes)
National income and prices
GDP (in millions of U.S. dollars)1,4221,2021,0951,031
GDP at constant prices–1.2–2.41.8
Food price index20.212.73.710.6
National minimum wage18.6
External sector
Exports, f.o.b. (in millions of U.S. dollars)39.0–24.9–5.213.8
Imports, c.i.f. (in millions of U.S. dollars)42.8–21.4–14.75.5
Export volume17.1–11.54.315.8
Import volume19.2–20.3–9.513.0
Change in the nominal trade-
weighted effective exchange rate–0.3–3.7–3.0–2.5
Central government budget
Revenue (excluding grants)8.219.87.89.2
Total expenditure9.55.23.37.8
Of which:personnel14.74.55.510.6
scholarships4.3–17.1–5.75.8
Money and credit
Domestic credit5.97.37.87.4
Credit to government3.58.56.48.0
Credit to the economy7.86.58.87.0
Money and quasi-money3.95.88.615.4
(Percent of GDP)
Consolidated government budget1
Excluding grants–4.1–3.0–1.5–1.5
Including grants–3.1–1.9–1.2–0.5
Consumption102.6105.4101.9101.5
Gross domestic investment17.317.216.518.0
Gross domestic savings–2.6–5.4–1.9–1.5
Resource gap19.922.6–18.4–19.5
Current account
Excluding official transfers–18.6–20.3–18.5–19.6
Including official transfers–10.2–9.5–8.0–7.7
External debt253.277.994.4110.7
Debt service ratio3,44.513.96.29.2
(Million U.S. dollars)
Overall balance of payments–32.7–37.4–3.87.7
External payments arrears535.935.420.814.3
Domestic payments arrears34.138.221.54.7
Sources: Data provided by the Malian authorities; and Fund staff estimates.

Includes the operations of the Central Government, special funds, as well as extrabudgetary receipts and payments reflected in the Treasury accounts, but not operations of the rural development agencies, development expenditures financed directly by external aid, and interest charges to be refinanced or rescheduled.

Inclusive of Fund credit and the operations account with the French Treasury.

As a percentage of exports of goods and services and receipts from private transfers.

Net of debt relief.

Arrears subject to cash payments.

Sources: Data provided by the Malian authorities; and Fund staff estimates.

Includes the operations of the Central Government, special funds, as well as extrabudgetary receipts and payments reflected in the Treasury accounts, but not operations of the rural development agencies, development expenditures financed directly by external aid, and interest charges to be refinanced or rescheduled.

Inclusive of Fund credit and the operations account with the French Treasury.

As a percentage of exports of goods and services and receipts from private transfers.

Net of debt relief.

Arrears subject to cash payments.

In the fiscal area, imbalances were reduced in 1982 and 1983, as envisaged under the program, owing largely to strictly controlled public consumption. Measures focused on expenditures and, in particular, on containing personnel expenditure, which in 1982 absorbed about 62 percent of total outlays, thus precluding adequate expenditures for maintenance, recurrent costs, and investment. Under an austere incomes policy, wages for civil servants had been frozen since 1981. This resulted in a 20 percent decline in real wages. In the second half of 1983, the Government discontinued automatically recruiting all graduates. Instead, competitive entry examinations were given to candidates for the civil service. Other measures for limiting growth in public employment included the strict enforcement of retirement rules, incentives for voluntary separation, and more flexible rules on releasing staff. Significant progress was made in strengthening the quality of financial management and in centralizing performance information on the Ministry of Finance’s special funds, so that operations could be more closely monitored. Accordingly, the consolidated government deficit, before grants, declined from 3.0 percent of GDP in 1981 to 1.5 percent of GDP in 1982 and 1983. Including grants, the deficit was reduced from 1.9 percent of GDP in 1981 to 1.2 percent in 1982 and 0.5 percent in 1983.

Progress was made in rehabilitating the large public enterprise sector. However, that sector’s contribution to improving aggregate supply through increased efficiency and to improving the savings ratio by reducing losses fell short of planned levels. The 1982 program called for a 30 percent reduction in the combined deficit of the 12 main public enterprises. While the deficit declined from CFAF 9.5 billion in 1981 to CFAF 7.3 billion in 1982, it remained above the target of CFAF 6.6 billion. The program’s price and tariff increases were adopted. The planned privatization of nonstrategic companies and the restructuring of SOMIEX, however, were only partly completed. SOMIEX implemented most of the requested measures, such as scaling down activities. Nonetheless, it did not meet the financial objectives. SOMIEX closed its retail stores, limited marketed commodities to seven, and reduced its excess transportation equipment. However, management problems and a shortfall in the reduction of personnel associated with the closing of retail stores precluded better financial results. Some of the other main public enterprises improved their operational and financial performance, but a major restructuring did not take place, pending the completion of a comprehensive report funded by the World Bank.

In 1983, the overall deficit of the 12 key public enterprises was reduced by nearly one third to CFAF 5.3 billion. Redundant employees, representing 8 percent of public enterprises’ total staff, were laid off, and three companies were closed at the end of 1983. However, major public enterprises encountered delays in implementing their rehabilitation programs and in strengthening their management.

Credit expansion in 1982 and 1983 remained below the targets for both the Government and the economy. In 1982, credit expanded by 7.8 percent, compared with a target of 10.4 percent. The Government received higher-than-expected budgetary assistance, which permitted credit to the Government to slow down to 6.4 percent. Seasonal credit to the economy declined because of delays in financing the large 1982/83 agricultural harvest. Consequently, the growth of credit to the economy in 1982 was 8.8 percent. In 1983, growth of credit to the economy was limited to 7.0 percent and largely accounted for the overall credit expansion of 7.4 percent, compared with a target of 10.2 percent. Interest rates on bank deposits were raised from 4.0 percent to 5.0 percent in May 1982.

Mali has made progress in strengthening the national debt agency. With assistance from the World Bank, further steps will be taken to complete the centralization of all foreign debt and to improve debt administration and management, in order to establish a fully reliable debt monitoring system.

Conclusion

The case of Mali illustrates the progress that a country can make by adopting an appropriate package of adjustment measures. After several years of declining activity, Mali benefited from an economic recovery during 1982–83. While the growth resulted in part from good weather conditions in 1982, new agricultural marketing and pricing policies were equally important factors. So were the tighter income, budgetary, and credit policies that led to a significant decline in inflationary pressures. Improved demand management and supply policies had substantial impact on the balance of payments. The balance of payments deficit was sharply reduced in 1982 and shifted into a surplus in 1983.

While the overall economic and financial situation improved significantly in 1982 and 1983, the task of structural change to improve the functioning of the economic system remains to be completed—particularly in agriculture and in public enterprises, whose rehabilitation will require additional substantial efforts.

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