I would like to thank staff for a comprehensive set of papers on Mali’s recent economic developments and prospects. Mali has demonstrated over the years strong political will to achieve high and sustainable economic growth through the implementation of a wide range of reforms notwithstanding repeated adverse economic shocks. My Malian authorities are very appreciative of the assistance provided by its development partners. Going forward, external assistance remains crucial for the successful implementation of well-conceived and designed poverty-reducing measures. In this regard, my authorities are thankful to the G-8 member countries, the IMF, and the international community for the adoption of the Multilateral Debt Relief Initiative (MDRI). The implementation of this initiative scheduled to take place early in 2006 will contribute to assist Mali in its efforts to implement sound policies, while further reducing the country’s debt burden, and enabling the authorities to make more tangible progress toward achieving the MDGs.
Following a difficult year of low cotton prices, high oil product prices, and insufficient production of food crops in 2005, more recent macroeconomic developments are encouraging. The economy is recovering with a likely outturn of real GDP growth of 5.5 percent in 2005, owing to a return to normal harvest in the second half of the year and increasing production of both gold and cotton. However, inflation has risen, notably on account of reduced food supply and skyrocketing oil product prices. The fiscal outlook has slightly deteriorated, but only temporary and on account of fiscal efforts to curb the effects of adverse shocks in the cotton sector.
Looking forward, the economic outlook is positive, and with good rainfall, agricultural production should rebound and inflation decline in 2006. Improving terms of trade, closing current account deficit and increased public investment will add to the authorities’ reform program aimed at strengthening the banking sector and promoting the development of the private sector to give a new impetus to Mali’s growth prospects. It is important that the Fund and the international community continue and strengthen their support to Mali. Increases in concessional loans and budget grants, which have proved critical to the country’s fiscal sustainability efforts, should be maintained and supplemented by innovative sources of financing that do not undermine the country’s economic fundamentals. On their part, my authorities will continue to do their utmost efforts to mobilize non-banking domestic resources to meet their macroeconomic and development objectives.
II. Performance Under the Program
Despite an adverse environment that has necessitated significant budget outlays, my authorities have managed to maintain an overall prudent fiscal management, which has resulted in a fiscal position in 2004 and 2005, consistent with the program objectives. All quantitative performance criteria at end-June and end-September 2005 have been met, including on the ceiling on net domestic financing, the nonaccumulation of external payments arrears, external borrowing concessionality and short-term external borrowing. In addition, they have observed all three financial performance indicators on cumulative tax revenues, cumulative wage bill and overall basic fiscal balance.
Monetary Policy and Financial Sector
Mali’s monetary policy, which is conducted at the regional level by the Central Bank of West African States (BCEAO), in the context of a fixed exchange rate regime, continues to serve the country’s economy well. Inflation is kept at sustainable levels, despite the supply shocks and high oil product prices.
As regards the banking sector, liquidity remains high. Indeed, bankable projects being limited, credit is consequently concentrated in a few sectors, notably the cotton sector which experiences some difficulties with the decline in exports prices. With regard to compliance with prudential norms, my authorities are aware that some banks are falling short of prudential requirements set out by the regional supervisory body. As a measure to deal with this issue, they have undertaken a review of commercial banks’ loan portfolios which will provide the basis for actions to strengthen the banks. Steps have also been taken, in order to restructure the housing bank.
The deterioration of the external environment due in particular to the surge of oil prices, and the slump in cotton exports has led to a further weakening of the current account deficit. Moreover, the protracted crisis in Côte d’Ivoire continues to impact negatively on regional trade in general and affecting Mali, in particular. However, due to the authorities’ persistent pursuit of good policies, the external sector remains fairly resilient with external reserves stabilized at a level of 6 months of imports coverage.
The structural reform program has experienced delays, many of which are results of factors which are out of the government’s control. Indeed, while all structural prior actions for the second and third reviews of the program were executed, the implementation of structural performance criteria and benchmarks has been less successful. The criterion on the cotton producer price was met, and that on the announcement of a base cotton producer price for 2005/06 aimed at reducing the risks for the budget was observed just two days after the intended day. The beginning of actuarial studies on the Caisse des Retraités du Mali (CRM) and audit of INPS contributions and beneficiaries - criterion not met on time - was subsequently observed, as was the benchmark on the social safety net. In addition, three criteria and benchmarks were not observed on account of factors that are not under the authorities’ control: (1) a court case contesting the government shareholding has delayed the closing date for acceptance of final bids for the sale of the government’s share in the Banque Internationale du Mali (BIM), and (2) the required technical assistance to complete a study aimed at strengthening the collection of nontax revenues by the Ministry of Property and Land Affairs was not available. Finally, the completion of a study intended to describe the appropriate rate structures of electricity rates and to propose a mechanism to support the poor has been postponed to May 2006, with a larger scope for the study.
In view of the overall good track record of Mali, and given the adverse economic environment faced by this economy as well as the country’s capacity constraints, my authorities are requesting a waiver for nonobservance of structural performance criteria. They are fully aware of the need to improve Mali’s administrative capacity, in order to strengthen structural program implementation. T/A is highly needed.
III. Program Policies Looking Forward
Cognizant of the challenges still lying ahead, my authorities remain committed to the implementation of their comprehensive medium-term economic program. They intend to put emphasis on policies and reforms aimed at improving economic efficiency and competitiveness through strict fiscal management, structural reforms in the cotton and banking sectors, and the strengthening of public institutions as well as other capacity building. This will sustain GDP growth at levels consistent with poverty reduction objectives and the attainment of the MDGs. The program laid out in their previous Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) is reinforced in the current LOI. This program is ambitious, including in the cotton sector reform, but remains realistic and reflects my authorities’ determination to move forward.
Fiscal discipline, even though difficult in the context of the adverse economic environment, remains the motto of the fiscal policy stance over the medium-term. The budget will not be supported by use of domestic credit or treasury bills, except if required to counter unforeseen shortfalls in budgetary grants or concessional loans and meet current-year obligations. Already for ending 2005, the authorities have identified additional budgetary assistance of CFA Francs 9 billion to cover shortfalls in revenue and higher spending needs with a view to close the previously anticipated financing gap.
As regards 2006, a fully financed draft budget was submitted to the National Assembly in September 2005. This budget contains important measures meant to improve revenue, including the strengthening of collection units and import taxation as well as regulatory steps for a prudent implementation of the revised investment code that will prevent tax losses. The authorities also envisage to establish a petroleum product price mechanism by end-March 2006 allowing a certain pass-through of the international oil prices to pump prices.
On the spending front, the authorities aim to focus on health, and education sectors, as well as roads and institutional capacity building. They stand ready to cut back on spending, should revenue realization falls below target. Gross financing from external partners is expected to increase substantially in 2006. As stated above, this assistance is crucial for Mali and we call on the donor community to meet their financing commitments. In the same vein, the upcoming multilateral debt cancellation under the MDRI debt relief to which Mali is eligible and qualifies will create budgetary leeway enabling further progress towards the MDGs.
Financial Sector Strengthening
My Malian authorities have made clear that they will keep focus on the strengthening of the financial system through increasing the weight of the private sector in the banking system and improving banks and non-banks’ management. The government divestiture from two important banks, namely Banque Internationale du Mali (BIM) and Banque de Développement du Mali (BDM) is waiting court ruling and an agreement on the parallel sale of shares by the Central bank of West African States (BCEAO). As regards the housing bank (Banque de l’Habitat du Mali, BHM), the authorities are implementing a restructuring plan centered on recapitalization following measures to enhance its financial position. This restructuring will be followed by a sale of government’s equity to the shareholders. Other efforts to revitalize financial intermediation will include a settlement of claims of commercial banks on government as well as the strengthening of the supervision of microfinance institutions which has been transferred to the Ministry of Economy and Finance and, thus, requires the improvement of the latter’s supervision capacity.
Structural Reform Program
In light of past fiscal shortfalls, the authorities are reforming public finance management. Notably, they will firmly implement an action plan with a focus on strengthening the agencies in charge of collecting taxes and customs, improving procurement, extending the computer network of the Treasury, and improving accountability.
While privatization of the Compagnie Malienne pour le Développement du Textile (CMDT) has been slower than planned, it is important to seek for the best approach possible and take into account the interest of Malian cotton producers. Progress has been made with the adoption by CMDT’s shareholders for a definition of a strategy for privatization by end-December 2005. The privatization of other non-financial companies is also ongoing, notably the cottonseed oil company (HUICOMA) which was completed in June 2005 and the telecommunications company (SOTELMA) which conclusion is expected by the fourth quarter of 2006. The authorities are committed to design by end-2006 a medium-term progress through 2008.
Finally in the electricity sector, the authorities confirm their commitment to private management of the electricity company, although the government will keep a strategic majority stake.
IV. Poverty Reduction Strategy Paper
The fiscal leeway that will be derived from the expected debt relief under the MDRI will enable further progress in poverty reduction and more broadly in achieving the MDGs. The authorities are preparing their second PRSP covering the period 2007–11, which will focus on matching identified budget room with the costs of poverty reducing efforts.
V. Other Important Issues
In addition to the debt cancellation under the MDRI, other actions are highly needed to enable Mali to meet its economic growth and socio-development objectives, notably capacity building and improved conditions for free and equitable trade.
Difficulties in implementing the structural reform program have highlighted the crucial need to strengthen capacity building in Mali. My authorities are very much appreciative of donors’ support through technical assistance, which nevertheless requires to be increased and well focused. We also call on the rapid decision regarding the request made by the authorities for a FSAP. Finally, the selected issues paper makes evidence on the importance for growth of infrastructure building, which is a crucial component of capacity building.
On the trade issue, we would like to renew our call for international trade, free of subsidies, including in the agricultural sector and quantitative impediments to market access. Countries like Mali have been harshly affected by such restrictions and shocks to the cotton sector. We call on a successful conclusion of the Doha Round.
My Malian authorities are strongly committed to continue implementing their program of sound macroeconomic policies and structural reforms, with a view to make important steps towards sustainable growth, poverty reduction and the achievement of the MDGs. In this regard, they appreciate the support provided by the international community, which is crucial to the success of their development efforts, and they call on the continuing financial and technical assistance from the country’s development partners.
In light of the progress made thus far and taking into account the tremendous difficulties facing Mali, I call on the Executive Board to support my Malian authorities’ request for waivers for non observance of structural performance criteria and conclude the second and third reviews under the PRGF-supported program.