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Mali

Author(s):
International Monetary Fund
Published Date:
August 2009
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I. Background

1. Mali’s fifth PRGF arrangement was approved in the context of the 2008 food and fuel crisis. Previous arrangements had sought to strengthen the country’s public finances and support a broad range of structural reforms. Considerable progress was made: the tax-to-GDP ratio rose from 9.2 percent in 1995 to 14.2 percent in 2007, with public financial management capacity improving apace, and the basic fiscal balance has seldom been far from its zero target. Many public enterprises were shifted to private ownership, and advances were made in social security reform and other areas. Yet poverty remains high, and progress toward the Millennium Development Goals is slow. The 2008 PRGF program aims to support the government’s efforts to achieve higher rates of growth and reduce poverty in a stable macroeconomic context. The program therefore supports prudent macroeconomic policies and a strengthening of structural reforms to reduce Mali’s vulnerability to external and climatic shocks.

II. Recent Economic Developments and Program Implementation

2. Despite the oil and food crisis, economic performance was generally satisfactory in 2008 (Tables 1 and 511). Economic growth reached 5.1 percent, mainly reflecting the impact of favorable climatic conditions on agricultural production, notwithstanding a further decline in cotton output. Annual inflation surged as world oil and food prices spiked but has since declined steadily from 12.9 percent at the end of September 2008 to 2.3 percent in May 2009. The difficult external environment led to both a moderate widening of the current account balance and, despite privatization revenue, a slight decline in official international reserves, but these still amounted to 4.9 months of import coverage at the end of 2008. These outcomes were fed by year-on-year nominal appreciation of 6.9 percent against the dollar. Mali’s nominal effective exchange rate appreciated by 3.5 percent and the real effective exchange rate by 8.0 percent. A combination of revenue and expenditure measures limited the basic fiscal deficit (revenue less expenditure, excluding foreign-financed investment projects and HIPC Initiative spending) to 1.2 percent of GDP, compared with the program target of 1.8 percent of GDP. In particular, the authorities restored petroleum product taxation to its precrisis level in the last quarter of 2008. Broad money was largely unchanged in the year to December, despite an 8½ percent increase in credit to the economy.

Table 1.Mali: Selected Economic and Financial Indicators, 2006–10
200612007200820092010
Rev. Prog.Est.Rev. Prog.Proj.Proj.
(in percent of GDP)
National income and prices
Real GDP5.34.34.95.15.34.14.5
GDP deflator5.12.68.58.73.32.71.8
Consumer price inflation (average)1.51.59.29.12.52.52.1
External sector (percent change)
Terms of trade (deterioration -)29.40.03.35.6−0.135.0−5.5
Real effective exchange rate (depreciation -)−1.30.58.0
Money and credit (contribution to broad money growth)
Credit to the government−11.60.57.2−3.27.010.2−1.2
Credit to the economy10.94.60.45.20.90.24.4
Broad money (M2)8.89.33.20.59.19.95.4
(in percent of GDP, unless otherwise indicated)
Investment and saving
Gross domestic investment20.921.024.920.525.219.319.3
Of which: government8.08.57.25.48.47.76.8
Gross national savings16.813.318.412.017.111.411.6
Of which: government3.12.92.22.22.63.00.4
Gross domestic savings15.712.015.39.315.310.59.6
Central government finance
Revenue17.316.616.015.517.116.717.0
Grants38.94.74.33.44.95.04.4
Total expenditure and net lending24.924.524.721.226.725.823.8
Overall balance (payment order basis, excluding grants)−7.6−7.9−8.6−5.6−9.7−9.1−6.8
Basic fiscal balance20.3−0.9−1.8−1.2−2.0−1.6−0.6
External sector
Current external balance, including official transfers−4.0−7.7−6.1−8.4−6.7−7.9−7.8
Current external balance, excluding official transfers−6.7−9.5−8.0−10.1−8.0−9.7−9.5
Exports of goods and services30.026.625.124.823.624.624.1
Imports of goods and services−35.1−35.6−34.7−35.9−33.5−33.5−33.8
Debt service to exports of goods and services3.73.43.44.23.64.54.5
External debt (end of period)18.922.925.223.027.125.027.3
Memorandum items:
Nominal GDP (CFAF billions)3,2013,4253,7793,9114,1114,1834,450
Overall balance of payments (US$ millions)120.2−21.2−15.1−10.31.7−3.1−9.7
Money market interest rate in percent (end of period)4.84.86.8.
Gross international reserves (US$ millions)1,1761,2981,2051,2261,2351,2581,286
in months of next year’s imports5.64.85.04.94.94.64.8
US$ exchange rate (end of period)496.5449.9481.5
Sources: Malian authorities; and IMF staff estimates and projections.

Figure 1.Mali: Recent Macroeconomic Developments, 2002–09

Sources: BCEAO; and IMF staff estimates.

3. All quantitative targets were met at the end of 2008, but progress on structural reform has been uneven. Moreover, the continuous performance criterion setting a zero ceiling on nonconcessional external borrowing was breached in April and May 2009 as a result of a syndicated loan agreement involving banks resident in the West African Economic and Monetary Union (WAEMU) and the Economic and Monetary Community of Central Africa (CEMAC)—see ¶ 5. As explained in the authorities’s letter of intent (LOI), the structural conditionality regarding the absence of new customs exemptions without a firm legal basis, privatization of the telecommunications parastatal SOTELMA, and the development of the Niger River Authority (OdN) was met. As a result, two of three structural performance criteria (PCs) and one of four structural benchmarks set for the second review were observed (Tables 2 and 3). The delays observed during the first review have continued to affect other reforms subject to structural conditionality, reflecting weaknesses in institutional capacity and the complexity of the problems to be addressed more than a lack of ownership of the reforms. However, the authorities have taken corrective actions to bring the program back on track:

Table 2.Mali: Quantitative Performance Criteria and Indicative Targets for 2008–091
20082009
Dec.MarchJuneSep.Dec.
Perf. CriteriaAdjustedActualIndic. TargetsAdjusted TargetsPrel.7Perf. CriteriaRev. Perf. CriteriaIndic. TargetsRev. Ind. TargetsIndic. TargetsPerf. Criteria
Quantitative performance criteria 1(CFAF billions)
Net domestic financing of the Government (ceiling)240.340.3−8.110.011.813.125.045.035.050.043.033.4
Of which: Bank and market financing 249.749.7−28.415.016.822.325.080.030.090.035.062.5
Cumulative increase in external payments arrears (ceiling) 30.00.00.00.00.00.00.00.00.00.00.00.0
New external borrowing at terms of one year or more contracted or guaranteed by the government on nonconcessional terms 3,40.00.00.00.00.017.5 80.00.00.00.00.00.0
New short-term external credits (less than one year) contracted or guaranteed by the government (ceiling) 30.00.00.00.00.00.00.00.00.00.00.00.0
Net tax revenue 5514.7514.7519.4140.0140.0143.5290.0290.0430.0430.0603.0603.0
Financial indicators (floors)
Basic fiscal balance−67.0−67.0−48.1−10.0−10.017.1−30.0−20.0−50.0−40.0−82.0−62.0
Memorandum items:
External budgetary assistance during the year 1655.754.120.06.440.048.060.032.086.092.0
HIPC Initiative debt relief 112.710.91.01.86.38.111.211.2
Table 3.Mali: Structural Conditionality for Second Review of the PRGF-Supported Program
MeasuresTest DateStatusMacroeconomic rationale
At test dateOn June 15, 2009
Prior actions
1Transmittal of the report for the restructuring of the BHM to the Banking Commission for review and to the Central Bank BCEAO for guidanceDone (June 11, 2009)Increase confidence in and resilience of the banking system and avoid more costly rescue package.
2Publication of a directive by the water and energy regulating body (CREE) that sets the conditions for the implementation of a 4 percent average increase in the electricity tariff on July 1, 2009.Done (May 26, 2009)Necessary intermediate step towards supply of power and water supply on a commercial basis.
Performance criteria
1Elimination of all customs exemptions not explicitly provided for by law (unless approved by Cabinet of Ministers)Continuous PCObservedObservedTo protect tax revenue, level playing field for investors.
2Launch of a call for tenders for the sale of Government shares in SOTELMAEnd-December 2008ObservedObservedTo reduce communication costs through increased private sector investment.
3Submission to the Regional Banking Commission of a restructuring plan for BHM, raising capital and liquidity ratios to WAEMU prudential normsEnd-March 2009Not observedObserved (see prior actions)Increase confidence in and resilience of the banking system and avoid more costly rescue package.
Benchmarks
1Adoption by the Council of Ministers of the reform master plan and of a development contract at the Niger AuthorityEnd-December 2008ObservedObservedTo encourage additional agricultural investment (small-holder and agro industrial) to strengthen food security.
2Government announcement of a new timetable for the transition phase before privatization of the CMDT clearly assigning roles for financing the 2009/10 harvest beginning January 2009End-December 2008Not observedObservedSupport financing of cotton production and sale.
3Adoption of a new tariff formula for electricity pricingEnd-March 2009Not observedObserved (see prior actions)Necessary intermediate step towards supply of power and water supply on a commercial basis.
4Adoption by the Council of Ministers of a new institutional public service framework for water and electricityEnd-March 2009Not observedNot observed (delay in completion of external study; reform to be followed by World Bank)Necessary intermediate step towards supply of power and water supply on a commercial basis.
  • The end-March PC related to a restructuring plan for the Housing Bank of Mali (BHM) was not observed on time. However, with technical assistance from the World Bank and the Fund, the authorities have transmitted to the Central Bank of West African States (BCEAO) and the Banking Commission of the West African Monetary Union (WAMU) an updated restructuring strategy with several options for the BHM. They have also started to recapitalize the bank and intend to formalize the next restructuring measures and adopt a strategy of disengagement from the bank by year-end.

  • The end-December 2008 structural benchmark on a new timetable for privatizing the cotton state enterprise (CMDT) and financing the 2009/10 cotton campaign was not observed until June 2009. The authorities are still committed to privatizing CMDT in early 2010 and are in the process of renewing the contract of their current privatization advisor. Finally, conditions for the 2009/10 campaign were completed in mid-May with the setting of producer and input prices.

  • The end-March benchmark on adoption of a new electricity tariff aimed at restoring the profitability and viability of the energy sector was met only on May 26, with an average 4 percent increase effective July 1.

  • The Council of Ministers has discussed a new institutional public service framework for water and electricity, also an end-March benchmark, but a decision remains linked to completion of an external study and will be addressed in the context of a World Bank sector operation.

LOI
Para 6

4. Performance under the program has remained generally satisfactory in early 2009. A bond issue planned for December 2008 was only completed and recorded on January 2, 2009, which prevented the observance of the end-March domestic financing benchmarks by small margins.1 All other quantitative benchmarks were observed. With revenue buoyant through May and strict regulation of spending, the basic budget balance was much better than programmed and has made it possible to significantly reduce the end-2008 payment float. To palliate any negative effects of the global recession, the regional monetary authorities have relaxed the monetary stance, following the lead of the European Central Bank. The BCEAO has injected liquidity as needed, and, on June 11, it cut Mali’s bank reserve requirement from 9 percent to 7 percent and reduced its main interest rate to 4.25 percent.

5. The intention of the authorities to finance the payment of VAT credit arrears (1½ percent of GDP) through a bond issue was confounded by tight conditions in the regional market (LOI of 11/18/08, ¶ 8). Because it was important to settle these arrears quickly, the authorities turned to a local bank for a loan, and the mining companies agreed to bear the interest costs of this loan through a partial write-off of their claims. However, for prudential reasons the local bank could not provide all the necessary financing, so it arranged two syndicated loans, signed in April and May 2009 for a total of CFAF 38 billion, with banks from other CFA franc zone countries. This meant the PC on nonconcessional external borrowing was not observed.2 The authorities are pursuing removal of the non-WAEMU banks (holding CFAF 3.5 billion of the loans) from the syndicate and improving internal controls to avoid contracting further debt inconsistent with program targets.

LOI
Paras 8–9

6. Mali’s poverty reduction strategy paper (PRSP) was transmitted to the IMF Board more than 18 months ago. The 2008 annual performance report is being finalized and will be transmitted by the end of September.

III. Program Discussions

A. The Impact of the Global Financial Crisis on the Macroeconomic Framework

7. Real growth is projected to decline from 5.1 percent in 2008 to 4.1 percent in 2009. The primary sector would benefit from stabilization of the cotton sector. Renewed expansion of the mining sector and a buoyant construction sector supported by public investment will engineer a slight recovery of the secondary sector. Sluggish economic activities and demand will, however, cause a slowdown of the services sector. Growth is projected to rebound to 4.5 percent in 2010 as the global environment improves and the reforms to support agricultural and private sector development take hold.

8. The impact of the global recession on Mali is expected to be limited, but the economy is vulnerable to new external shocks. In particular, the balance of payments in 2009–10 will strengthen because of a sharp improvement in the terms of trade, the largest in the subregion (Text figure 1). The balance of trade is projected to improve by more than 2½ percentage points of GDP in 2009, reflecting buoyant world prices for gold (80 percent of exports) and the fall of international food and oil prices. However, this will mostly be offset by a projected decline in remittances and tourism receipts and higher transfers of gold mining profits. The resulting current account balance deficit, excluding grants, would improve by half a percentage point to 9½ percent of GDP. On the financing side, a slowdown of private capital inflows will more than outweigh an increase in foreign assistance, but official reserves will remain stable. The external sector, however, is vulnerable to a reversal of the terms of trade gains, a larger drop of remittances, and a decline in external aid (Text Table 1).

Text Figure 1:WAEMU Terms of Trade, 2008–10

(Index 2000 = 100)

Source: IMF, African Department Database.

Text Table 1.Mali: Impact of an Adverse Shock to Selected Flows of the 2009 Balance of Payments
20082009
Prel.Proj.Impact of a 10 percent adverse shock
Billions of CFAFPercent of GDPBillions of CFAFPercent of GDPBillions of CFAFPercent of GDP
Current accout balance (excl. grants)−394.5−10.1−405.7−9.7
Trade balance−230.2−5.9−135.8−3.2
Inflows:1,247.629.81,423.534.0−142.3−3.4
Gold exports589.214.1679.816.3−68.0−1.61/
Cotton exports (fiber)65.61.660.71.5−6.1−0.11/
Tourism receipts116.52.899.92.4−10.0−0.2
Private transfers (remittances)188.24.5150.63.6−15.1−0.42/
External aid288.16.9432.510.3−43.2−1.03/
Outflows:−790.8−18.9−743.9−17.874.41.8
Petroleum products imports−258.0−6.2−180.3−4.318.00.41/
Food imports−151.6−3.6−144.0−3.414.40.31/
Insurance and freight−247.2−5.9−237.6−5.723.80.61/
Mining sector profits−134.0−3.2−181.9−4.318.20.4
Source: IMF staff estimates and projections.

9. Because Mali’s financial sector has few claims on world financial markets, it is not directly exposed to the financial crisis. However, with 5 of 16 financial and banking institutions under close surveillance by the monetary authorities and a major exposure to the cotton sector, the sector remains fragile. The increase of the minimum bank capital requirement to CFAF 5 billion (US$10.5 million) by the end of 2010 is expected to result in a restructuring and strengthening of the sector.

B. Fiscal Policy and the Management of Domestic Debt

10. The original 2009 budget aimed at supporting higher growth. The fiscal stance was expansionary, reversing the spending cuts that were used in 2008 to address the fuel and food crisis, and making use of higher foreign financing and privatization receipts. The better than expected budgetary outcome at the end of 2008 gave the 2009 stance an even more expansionary cast. The basic balance deficit, which serves as the anchor for fiscal policy, was set to rise from 1.2 percent of GDP in 2008 to 2.0 percent in 2009. However, a significant build-up of the budgetary payment float at year-end 2008, which increased from the equivalent of 6 weeks of nonwage domestic budgetary expenditure at the end of 2007 to 13 weeks, necessitated corrective actions to avoid accumulation of domestic arrears. Moreover, the settlement of VAT credit arrears, initially planned for late 2008, was delayed to the first half of 2009; claims of two mines, equivalent to 1 percent of GDP, were settled through a combination of tax offsets and bank loans.

11. The substantial build-up of the payment float last year increased pressures on the Treasury in early 2009.3 Staff shared the concern of the authorities about the float and supported their decision to reduce it concurrently with the regularization of VAT credits owed to the mining sector. To better understand the problem of the payment float, the government commissioned the Office of the Auditor General and the Comptroller’s Office to evaluate the domestic payment float at end-March 2008 and 2009. The program targets a net reduction in the payment float by CFAF 30 billion (0.7 percent of GDP) in 2009, buttressed by improved Treasury management. The implementation in early 2009 of an improved treasury plan designed to regulate budgetary execution to reduce the payment float is a key instrument in this regard. Moreover, the extension of the budget tracking system to nearly all ministries and administrative entities covered by the budget is now providing timely and previously unavailable information that should also help control the emergence of new unpaid bills. The reform program for the remainder of 2009 aims to build upon these measures (Table 4). The measures taken to date, if sustained, should be sufficient to restore order to the fiscal accounts during 2009.

Table 4.Mali: Structural Benchmarks for the Third and Fourth Reviews Under the PRGF Program
MeasuresMacroeconomic rationale
For end-September 2009 (in the context of the 3rd program review)
1Put in place the tax center for medium-sized enterprises (CIME) and start up its activities.Strengthen revenue mobilization.
2Prepare a government cash flow plan consistent with budget nomenclature (section, economic code) to facilitate (i) quarterly monitoring of budget execution in terms of commitment, validation, payment authorization, and payment of expenditure, and (ii) better alignment of budget execution with available resources.Strengthen public financial management, budget execution, and treasury management.
3Regarding monitoring of the cotton sector and in consultation with the IMF, prepare a monthly financial plan for the 2009/10 crop season of the financial operations (revenue, commitments, payment, debt, amounts unpaid) of the various participants in the sector (producers, CMDT, suppliers, banks, the government).Improve governmence and transparency in the cotton sector with the view to ensuring smooth cottn campaign in 2009–2010 and limit budgetary risks.
4Regarding government support for the agricultural sector and preparation of the 2010 budget, put in place a dedicated, targeted input subsidization system for grain and cotton crops, including modalities for implementation, follow-up, and assessment.Increase effectiveness and transparency of agricultural policy, prevent open-ended budgetary contributions and ensure monitoring and evaluation of subsidies.
For end-December 2009 (in the context of the 4th program review)
1On the basis of the evaluation of the budgetary payment float at end-March 2008 by the Auditor General and the evaluation of the payment float at end-March 2009 by the Controller General’s Office and the Inspectorate General of Finance, put in place a system to monitor budgetary float supported by improvements in the Treasury’s accounting, cash flow management, and information systems, in consultation with IMF staff.Improve transparency, measurability and management of domestic debt, and prevent occurance of domestic payment arrears.
2By government decision, adopt a strategy and timeframe for government divestment of the Banque de l’Habitat du Mali (BHM).Increase confidence in and resilience of the banking system, and avoid more costly rescue packages.
3Finalize the government study on the macroeconomic impact of the gold mining sector (balance of payments, growth, employment, budget) and its medium-term prospects.To help policy and decision making in the context of a declining sector (known reserves are equivalent to 10 years of exploitation)
4In conjunction with the BCEAO, prepare (i) an exhaustive inventory of the bank accounts taken into account in the net government position, and (ii) an appropriate methodology for recording movements on these accounts, based on an accepted classification (such as projects, correspondents, etc.), in the government flow of funds table (TOFE).Improve public finance statistics.
Table 5.Mali: National Accounts, 2006–10
20062007200820092010
Rev. Prog.Est.Rev. Prog.Proj.Proj.
(in percent of GDP)
Primary sector4.32.59.113.24.95.85.3
Agriculture4.61.012.120.25.56.56.0
Food crops, excluding rice10.06.46.014.45.06.14.0
Rice6.02.639.548.55.06.68.5
Industrial agriculture, excluding cotton3.08.09.222.04.311.99.5
Cotton−21.6−41.1−13.6−17.018.05.015.0
Livestock4.04.65.04.04.04.24.3
Fishing and forestry3.94.55.43.74.25.74.6
Secondary sector8.3−4.6−5.3−5.34.20.94.5
Mining17.8−8.4−4.9−8.33.1−2.41.9
Industry0.9−12.0−22.4−14.4−0.6−4.23.1
Agrobusiness1.00.7−20.0−20.01.5−5.02.0
Textile1.0−19.9−33.5−34.02.8−10.51.6
Others0.9−19.1−18.516.2−2.00.75.0
Energy10.09.711.210.010.09.09.0
Construction and public works3.08.78.04.57.07.57.0
Tertiary sector9.410.47.34.94.74.24.7
Transportation and telecommunications16.020.915.29.28.57.37.5
Trade14.012.08.64.45.03.54.5
Financial services6.05.07.37.35.04.55.0
Other nonfinancial services4.07.95.45.45.05.15.5
Public administration2.42.10.21.50.21.81.5
GDP (factor cost)7.23.95.15.74.74.24.9
Indirect taxes−15.09.50.8−2.014.63.0−0.7
GDP (market prices)5.34.34.95.15.34.14.5
Nonmining real GDP4.25.55.76.25.44.64.7
(Percentage of GDP, unless otherwise indicated)
Aggregate demand
Consumption84.388.084.390.782.789.590.4
Private consumption70.873.976.378.273.975.476.8
Public consumption13.514.18.012.58.814.113.6
Gross investment20.921.024.920.525.219.319.3
Government8.08.57.25.48.47.76.8
Non-government12.812.517.715.116.811.612.5
Net investment8.910.315.011.514.59.510.5
Changes in inventories3.92.22.73.62.32.12.0
Net foreign balance−5.1−9.0−9.2−11.1−8.0−8.9−9.7
Gross national saving16.813.318.412.017.111.411.6
Of which: domestic saving15.712.015.39.315.310.59.6
Memorandum items:
External current account balance1−4.0−7.7−6.1−8.4−6.7−7.9−7.6
Nominal GDP (CFAF billions)3,2013,4253,7793,9114,1114,1834,450
Sources: Malian authorities; and IMF staff estimates and projections.
Table 6.Mali: Balance of Payments, 2006–101
20062007200820092010
Est.Rev. Prog.Est.Rev. Prog.Proj.Proj.
(CFAF billions)
Current account balance
Excluding official transfers−214−324−302−395−331−406−422
Including official transfers−128−262−230−329−277−332−345
Trade balance25−114−145−230−162−136−208
Exports, f.o.b.796734758759766845863
Cotton fiber1251106666576147
Gold587546594589598680707
Other837898104112105109
Imports, f.o.b.−770−847−903−989−928−981−1071
Petroleum products−189−188−251−258−172−180−232
Foodstuffs−139−126−153−152−148−144−150
Other−443−534−498−579−608−657−688
Services (net)−189−194−202−206−166−235−223
Credit164177191211204184209
Debit−353−370−393−417−370−420−432
Of which: freight and insurance−171−189−212−247−174−238−243
Income (net)−135−143−95−109−176−147−140
Of which: interest due on public debt−15−11−13−13−12−12−13
Transfers (net)170188211216227186226
Private transfers (net)84126139151173112148
Official transfers (net)86627165547477
Of which: budgetary grants36282925374747
Capital and financial account219252223312278330340
Capital account (net)1,218142146125171181167
Capital transfers1,218142146125171181167
Debt forgiveness1,085000000
Project grants127134138109163164147
Financial account−99910477186107149174
Private (net) 2−6417−26115−8−337
Direct investment (net)37795182443239
Portfolio investment private (net)5−122244
Other private capital flows−106−61−7930−55−39−7
Official (net)−9138710372115152137
Disbursements141119132100149186172
Budgetary40182029754646
Project related1011011127175140126
Amortization due on public debt−1053−31−29−28−34−34−35
Errors and omissions−286−3213000
Overall balance63−10−8−51−2−5
Financing−631085−125
Foreign assets (net)−85−1−5−6−13−10−15
Of which: IMF (net)−6121313333
HIPC Initiative assistance22111311121220
Financing gap0000000
Memorandum items:
External trade
Export volume index2.7−10.8−13.3−13.21.4−3.5−1.2
Import volume index10.66.4−3.03.59.816.0−0.2
Export unit value37.33.415.419.1−0.315.53.4
Import price6.23.49.912.8−6.3−14.59.4
Terms of trade29.40.05.05.66.535.0−5.5
External current account balance
Including official transfers−4.0−7.7−6.1−8.4−6.7−7.9−7.8
Excluding official transfers−6.7−9.5−8.0−10.1−8.0−9.7−9.5
External public debt18.922.918.923.019.425.027.3
Debt service to exports ratio (in percent)3.73.4108.64.23.54.54.5
NPV of debt-to-exports (percent)40.647.947.954.659.059.064.1
Commodity prices:
Petroleum (crude spot; US$/barrel)64.371.171.197.074.860.574.5
Gold (US$/ounce)604.3696.7696.7871.7845.0913.8986.3
Cotton (US cents/pound), f.o.b54.159.359.371.469.057.358.0
(in percent of GDP)
Current account balance
Excluding official transfers−6.7−9.5−8.0−10.1−8.1−9.7−9.5
Including official transfers−4.0−7.7−6.1−8.4−6.7−7.9−7.8
Trade balance0.8−3.3−3.8−5.9−3.9−3.2−4.7
Exports, f.o.b.24.921.420.119.418.620.219.4
Cotton fiber3.93.21.81.71.41.51.1
Gold18.315.915.715.114.516.315.9
Other2.62.32.62.72.72.52.4
Imports, f.o.b.−24.1−24.7−23.9−25.3−22.6−23.5−24.1
Petroleum products−5.9−5.5−6.7−6.6−4.2−4.3−5.2
Foodstuffs−4.3−3.7−4.1−3.9−3.6−3.4−3.4
Other−13.8−15.6−13.2−14.8−14.8−15.7−15.5
Services (net)−5.9−5.7−5.3−5.3−4.0−5.6−5.0
Credit5.15.25.15.45.04.44.7
Debit−11.0−10.8−10.4−10.7−9.0−10.0−9.7
Of which: freight and insurance−5.3−5.5−5.6−6.3−4.2−5.7−5.5
Income (net)−4.2−4.2−2.5−2.8−4.3−3.5−3.1
Of which: interest due on public debt−0.5−0.3−0.3−0.3−0.3−0.3−0.3
Transfers (net)5.35.55.65.55.54.45.1
Private transfers (net)2.63.73.73.94.22.73.3
Official transfers (net)2.71.81.91.71.31.81.7
Of which: budgetary grants1.10.80.80.60.91.11.0
Capital and financial account6.87.45.98.06.87.97.6
Capital account (net)38.04.13.93.24.24.33.7
Capital transfers38.04.13.93.24.24.33.7
Debt forgiveness33.90.00.00.00.00.00.0
Project grants4.03.93.72.84.03.93.3
Financial account−31.23.02.04.82.63.63.9
Private (net) 2−2.00.5−0.72.9−0.2−0.10.8
Direct investment (net)1.22.31.32.11.10.80.9
Portfolio investment private (net)0.10.00.10.10.10.10.1
Other private capital flows−3.3−1.8−2.10.8−1.3−0.9−0.2
Official (net)−28.52.62.71.82.83.63.1
Disbursements4.43.53.52.63.64.43.9
Budgetary1.30.50.50.71.81.11.0
Project related3.12.93.01.81.83.32.8
Amortization due on public debt−32.9−0.9−0.8−0.7−0.8−0.8−0.8
Errors and omissions−0.90.2−0.80.30.00.00.0
Overall balance2.0−0.3−0.2−0.10.00.0−0.1
Financing−2.00.30.20.10.00.00.1
Foreign assets (net)−2.70.0−0.1−0.2−0.3−0.2−0.3
Of which: IMF (net)−1.90.10.40.30.10.10.1
HIPC Initiative assistance0.70.30.30.30.30.30.4
Financing gap0.00.00.00.00.00.00.0
Memorandum item:
GDP (in billions of CFAF)3,2013,4253,7793,9114,1114,1834,450
Sources: Malian authorities; and IMF staff estimates and projections.
Table 7.Mali: Central Government Consolidated Financial Operations, 2006–10
20062007200820092010
Rev. ProgEst.Rev. ProgProj.Proj.
(in CFAF billions)
Revenue and grants1,798.7730.3769.0741.5901.3907.3951.0
Total revenue554.2569.9606.2607.3701.0697.1757.1
Budgetary revenue504.5509.4539.9540.6629.5625.6681.1
Tax revenue478.6487.2504.7519.4603.5599.6653.4
Direct taxes100.1142.8151.1149.7170.4175.4172.2
Indirect taxes378.5344.4353.6369.7433.1424.2486.2
VAT202.6194.4200.0200.8242.9230.2256.3
Excises on petroleum products21.636.629.735.232.737.740.3
Import duties83.262.453.164.387.786.5103.2
Other indirect taxes92.585.195.091.977.377.386.4
Tax refund−21.4−34.1−24.2−22.5−7.5−7.5−5.0
Nontax revenue25.922.235.221.226.026.027.7
Special funds and annexed budgets49.760.566.366.771.571.576.1
Grants1,244.5160.4162.8134.2200.3210.2193.8
Projects75.579.669.854.6117.5117.5105.8
Sectoral39.850.664.454.645.946.141.5
General44.027.928.625.036.946.646.6
MDRI grants1,085.22.30.00.00.00.00.0
Total expenditure and net lending796.3839.0932.2828.21,099.11,077.11,058.1
Budgetary expenditure752.6826.1856.3753.91,016.6994.6986.0
Current expenditure411.8437.1475.4459.1554.6562.4584.2
Wages and salaries147.9162.9194.2186.0217.1217.1228.0
Goods and services148.4161.3168.7164.7204.6179.1198.7
Transfers and subsidies100.099.197.894.3118.5135.7139.2
Interest15.513.914.714.114.414.818.3
Of which: domestic1.02.71.81.61.92.35.1
Capital expenditure340.8389.0380.9294.9462.0432.2401.8
Externally financed228.7227.6246.3172.8303.5303.7273.3
Domestically financed112.1161.4134.6122.1158.5128.5128.5
Special funds and annexed budgets49.760.566.366.771.571.576.1
Net lending−6.0−47.69.67.611.011.0−4.0
Overall fiscal balance (excl. grants)−242.1−269.1−326.0−220.9−398.1−380.1−301.0
Overall fiscal balance (incl. grants)1,002.4−108.7−163.2−86.7−197.8−169.9−107.1
Adjustment to cash basis−15.65.2−62.049.20.0−87.6−15.0
Overall balance (cash basis, incl. grants)986.8−103.5−225.2−37.5−197.8−257.5−123.1
Financing−1,001.4103.5225.237.5197.8257.5123.1
External financing (net)−890.598.0125.582.5155.3163.6156.5
Loans140.6118.7141.999.9177.7186.0172.0
Project loans100.5100.7112.470.8140.1140.1126.1
Budgetary loans40.118.029.529.132.445.945.9
Amortization−1,053.3−31.4−29.1−28.3−33.9−33.9−35.1
Debt relief22.210.712.710.911.511.519.6
Domestic financing (net)−110.95.599.7−45.042.593.9−33.4
Banking system−99.211.573.5−32.634.0104.6−13.4
Net credit to the government−98.811.573.5−32.634.0104.6−13.4
IMF (net)−60.61.912.412.53.03.03.0
Statutory advances−1.6−2.4−2.3−2.4−2.4−2.1
Other−36.610.663.5−42.833.4104.0−14.3
Other domestic financing−0.40.00.00.00.00.00.0
Privatization receipts0.90.742.039.113.013.05.0
Other financing−12.6−6.7−15.8−51.5−4.5−23.7−25.0
Financing gap0.00.00.00.00.00.00.0
Memorandum items
Basic fiscal balance 18.8−30.8−67.0−48.2−83.1−64.9−27.6
Domestic government saving92.772.364.581.574.963.196.9
External budgetary assistance98.745.958.154.174.592.592.5
Wage bill over tax revenue30.933.438.535.836.036.234.9
Nominal GDP3,2013,4253,7793,9114,1114,1834,450
(in percent of GDP)
Revenue and grants56.221.320.319.021.921.721.4
Total revenue17.316.616.015.517.116.717.0
Budgetary revenue15.814.914.313.815.315.015.3
Tax revenue14.914.213.413.314.714.314.7
Direct taxes3.14.24.03.84.14.23.9
Indirect taxes11.810.19.49.510.510.110.9
VAT6.35.75.35.15.95.55.8
Excises on petroleum products0.71.10.80.90.80.90.9
Import duties2.61.81.41.62.12.12.3
Other indirect taxes2.92.52.52.31.91.81.9
Tax refund−0.7−1.0−0.6−0.6−0.2−0.2−0.1
Nontax revenue0.80.60.90.50.60.60.6
Special funds and annexed budgets1.61.81.81.71.71.71.7
Grants38.94.74.33.44.95.04.4
Projects2.42.31.81.42.92.82.4
Sectoral1.21.51.71.41.11.10.9
General1.40.80.80.60.91.11.0
MDRI grants33.90.10.00.00.00.00.0
Total expenditure and net lending24.924.524.721.226.725.823.8
Budgetary expenditure23.524.122.719.324.723.822.2
Current expenditure12.912.812.611.713.513.413.1
Wages and salaries4.64.85.14.85.35.25.1
Goods and services4.64.74.54.25.04.34.5
Transfers and subsidies3.12.92.62.42.93.23.1
Interest0.50.40.40.40.30.40.4
Of which: domestic0.00.10.00.00.00.10.1
Capital expenditure10.611.410.17.511.210.39.0
Externally financed7.16.66.54.47.47.36.1
Domestically financed3.54.73.63.13.93.12.9
Special funds and annexed budgets1.61.81.81.71.71.71.7
Net lending−0.2−1.40.30.20.30.3−0.1
Overall fiscal balance (excl. grants)−7.6−7.9−8.6−5.6−9.7−9.1−6.8
Overall fiscal balance (incl. grants)31.3−3.2−4.3−2.2−4.8−4.1−2.4
Adjustment to cash basis−0.50.2−1.61.30.0−2.1−0.3
Overall balance (cash basis, incl. grants)30.8−3.0−6.0−1.0−4.8−6.2−2.8
Financing−31.33.06.01.04.86.22.8
External financing (net)−27.82.93.32.13.83.93.5
Loans4.43.53.82.64.34.43.9
Project loans3.12.93.01.83.43.32.8
Budgetary loans1.30.50.80.70.81.11.0
Amortization−32.9−0.9−0.8−0.7−0.8−0.8−0.8
Debt relief0.70.30.30.30.30.30.4
Domestic financing (net)−3.50.22.6−1.21.02.2−0.8
Banking system−3.10.31.9−0.80.82.5−0.3
Net credit to the government−3.10.31.9−0.80.82.5−0.3
IMF (net)−1.90.10.30.30.10.10.1
Statutory advances0.00.0−0.1−0.1−0.1−0.10.0
Other0.31.70.82.5−0.3
Other domestic financing0.00.00.00.00.00.00.0
Privatization receipts0.00.01.11.00.30.30.1
Other financing−0.4−0.2−0.4−1.3−0.1−0.6−0.6
Financing gap0.00.00.00.00.00.00.0
Memorandum items
Basic fiscal balance0.3−0.9−1.8−1.2−2.0−1.6−0.6
Domestic government saving2.92.11.72.11.81.52.2
External budgetary assistance3.11.31.51.41.82.22.1
Nominal GDP3,2013,4253,7793,9114,1114,1834,450
Sources: Ministry of Finance; and IMF staff estimates and projections.
Table 8.Mali: WAEMU Convergence Criteria, 2006–10
Criterion200620072008 Est.2009 Proj.2010 Proj.
(Ratios in percent, unless otherwise indicated)
Primary criteria
Basic fiscal balance/GDP>=00.3−0.9−1.2−1.6−0.6
Inflation (annual average percentage change)<=31.51.59.12.52.1
Total nominal debt/GDP<=7039.939.737.538.739.4
Domestic arrears accumulation (CFAF billions)<=00.00.00.00.00.0
External arrears accumulation (CFAF billions)<=00.00.00.00.00.0
Secondary criteria
Wages/fiscal revenue<=3530.933.435.836.234.9
Domestically financed investment/fiscal revenue>=2022.231.722.620.518.9
Current account deficit, excl. current official transfers/GDP<=5−6.7−9.5−10.1−9.7−9.5
Tax revenue/GDP>=1714.914.213.314.314.7
Sources: Malian authorities; and IMF staff estimates and projections.
Table 9.Monetary Survey, 2006–10
20062007200820092010
DecDecDecDecDecDecDec.
Rev. Prog.Prel.Rev. Prog.Proj.Proj.
(In billions of CFA francs)
Net Foreign Assets524.0526.4517.4496.2530.4516.2541.2
BCEAO460.0460.5465.5466.8478.6476.8491.8
Commercial Banks64.065.951.929.451.939.449.4
Net Domestic Assets408.0491.9533.4527.4616.2609.2645.5
Credit to the government (net)−128.2−123.5−50.0−156.223.5−51.6−65.0
BCEAO, net−10.5−0.15.5
Commercial banks−117.3−122.9−161.7
Other−0.4−0.50.0
Credit to the economy575.2618.3622.5671.2631.8673.7723.4
Other items (net)−39.1−2.9−39.112.4−39.1−12.9−12.9
Money supply (M2)932.01,018.31,050.81,023.61,146.61,125.41,186.7
Currency outside banks343.7323.9377.1317.1411.5348.6367.6
Bank deposits588.2694.4673.6706.6735.1776.8819.1
Memorandum item:
Base Money (M0)449.4467.5519.5491.1520.6515.2543.2
Contribution to the growth of broad money(In percent)
Money supply (M2)8.89.33.20.59.19.95.4
Net foreign assets11.40.3−0.9−3.01.22.02.2
BCEAO7.00.10.50.61.11.01.3
Commercial banks4.40.2−1.4−3.62.21.00.9
Net domestic assets−2.79.04.13.57.98.03.2
credit to the central government−11.60.57.2−3.27.010.2−1.2
Credit to the economy10.94.60.45.20.90.24.4
Other items net−1.93.9−3.51.50.0−2.50.0
Memorandum items:(Variation in percent, unless otherwise specified)
Money supply (M2)8.89.33.20.59.19.95.4
Base money (M0)−2.84.011.15.03.64.95.4
Credit to the economy19.37.50.78.51.50.47.4
Velocity (GDP/M2)3.43.43.63.83.63.73.8
Money Multiplier (M2/M0)2.12.22.02.12.22.22.2
Currency outside banks/M236.931.835.931.035.931.031.0
Sources: BCEAO; and Fund staff estimates and projections.
Table 10.Mali: Medium-Term Outlook, 2006–13
200612007200820092010201120122013
Est.Proj.Proj.Proj.Proj.Proj.
(Annual percentage change)
Output supply and demand
Real GDP5.34.35.14.14.54.85.05.0
Aggregate demand (contribution to output growth)
Consumption1.97.57.32.54.94.63.23.7
Private consumption1.26.38.30.34.93.82.23.0
Public consumption0.71.2−1.02.30.00.81.00.7
Gross investment−0.11.00.5−0.30.82.32.32.1
Government1.50.8−2.92.7−0.70.70.70.4
Nongovernment−1.60.23.4−3.01.51.61.61.7
Changes in inventories−2.5−1.61.6−1.40.00.00.00.0
Net foreign balance3.5−4.3−2.71.9−1.3−2.1−0.6−0.8
Prices, period average
GDP deflator5.12.68.72.71.81.92.52.2
CPI inflation1.51.59.12.52.12.02.12.0
Terms of Trade29.40.05.635.0−5.5−3.1−1.3−3.7
(Percent of GDP; unless otherwise indicated)
Investment20.921.020.519.319.320.621.822.8
Government8.08.55.47.76.87.27.57.5
Nongovernment12.812.515.111.612.513.414.415.3
Gross national savings16.813.312.011.411.611.513.214.3
Gross domestic saving15.712.09.310.59.69.410.611.3
Government0.41.11.9−1.00.41.11.31.5
Nongovernment15.310.97.411.49.28.29.39.9
Saving-investment balance−5.1−9.0−11.1−8.9−9.7−11.2−11.3−11.5
Government−7.6−7.5−3.5−8.7−6.4−6.0−6.2−6.1
Nongovernment2.5−1.5−7.7−0.1−3.3−5.2−5.1−5.4
Central government finance
Revenue and grants56.221.319.021.721.422.122.622.7
Total revenue17.316.615.516.717.017.718.218.2
Fiscal revenue14.914.213.314.314.715.415.815.9
Non-tax revenue and special accounts2.42.42.22.32.32.32.42.4
Grants38.94.73.45.04.44.34.44.5
Total expenditure and net lending24.924.521.225.823.824.124.724.6
Of which: Current expenditure12.912.811.713.413.113.013.112.9
Capital expenditure10.611.47.510.39.09.510.010.0
Overall balance (payment order basis, excl. grants)−7.6−7.9−5.6−9.1−6.8−6.4−6.6−6.4
Basic balance40.3−0.9−1.2−1.6−0.60.10.00.1
External sector
Current external balance, including official transfers−4.0−7.7−8.4−7.9−7.8−9.2−8.6−8.5
Current external balance, excluding official transfers−6.7−9.5−10.1−9.7−9.5−8.9−10.6−10.5
Exports of goods and nonfactor services24.921.419.420.219.417.717.216.2
Imports of goods and nonfactor services−24.1−24.7−25.3−23.5−24.1−23.8−23.4−22.7
Debt service ratio after debt relief3.73.44.24.54.55.04.44.5
Gross international reserves
US$ millions1,1761,2981,2261,2581,2861,3411,3941,444
In Months of next year’s imports5.64.84.94.64.84.34.34.2
Source: Malian authorities; and IMF staff estimates and projections
Table 11.Mali: Schedule of Disbursements Under the PRGF Arrangement, 2008–11
AmountAvailable dateDisbursement dateConditions for disbursement1
SDR 12.99 millionMay 28, 2008June 18, 2008Executive Board approval of the three-year PRGF arrangement.
SDR 5.00 millionDecember 3, 2008December 10, 2008Observance of the performance criteria for June 30, 2008, and completion of the first review under the arrangement
SDR 2.00 millionMay 15, 2009June 1, 2009Observance of the performance criteria for December 31, 2008, and completion of the second review under the arrangement
SDR 2.00 millionOctober 15, 2009November 1, 2009Observance of the performance criteria for June 30, 2009, and completion of the third review under the arrangement
SDR 2.00 millionApril 15, 2010May 1, 2010Observance of the performance criteria for December 31, 2009, and completion of the fourth review under the arrangement
SDR 2.00 millionOctober 15, 2010November 1, 2010Observance of the performance criteria for June 30, 2010, and completion of the fifth review under the arrangement
SDR 2.00 millionApril 15, 2011May 1, 2011Observance of the performance criteria for December 31, 2010, and completion of the sixth review under the arrangement
Source: International Monetary Fund.

12. To address the payment float and to prevent the emergence of a financing gap, the fiscal impulse approved during the first review has been curtailed on a commitments basis. Reductions in the basic and overall budget deficits (excluding grants) by about ½ percentage point of GDP, to 1½ percent and 9 percent of GDP, respectively, are now being targeted. The revised projections reflect spending cuts equivalent to 1.2 percent of GDP (mostly in domestically financed capital expenditure) that are only partially offset by new spending for agriculture (0.5 percent of GDP) and the housing bank (0.2 percent). The resulting expenditure level is still much higher than in 2008 and will help increase aggregate demand and support economic activity. Revenue is projected to meet annual targets based on sustained performance in the first five months of 2009. Taking into account the planned reduction in the payment float (0.7 percent of GDP) and a slight increase in grant financing, the budget deficit, on a cash basis and including grants, would remain in line with the original target of 4.8 percent of GDP. With the additional regularization of unpaid VAT credits, it is projected to reach 6.2 percent of GDP and the domestic financing requirement will increase to 2.2 percent of GDP, compared with a program target of 1 percent.4

13. Given the downside risks to the current macroeconomic framework, the authorities have decided to curtail spending in the first three quarters of the year to create a precautionary budget reserve. This is to be achieved through the additional sequestering of some non-priority budget allocations and a careful regulation of budget execution. This buffer would be used in the last quarter of 2009 if the annual fiscal objectives are no longer considered at risk.

LOI
Para 19

14. The government has drawn on significant amounts of bank financing to reduce the domestic payment float, settle VAT credit arrears, and finance structural reforms. This is raising concerns about domestic indebtedness and its cost. The authorities began issuing securities on the regional money market in 2008, raising the equivalent of 1 percent of GDP, and expect to do the same in 2009. A new debt sustainability analysis is being prepared for the third review to revisit these concerns and assess whether Mali is still at low risk of debt distress. Simulations on the previous data suggest that, with lower official disbursements than had been projected and an expected downward shift in the path of official lending, the estimate for the NPV of external debt/GDP at end-2008 could drop significantly from the previous 16.8 percent projection.

15. Given the projected improvement in the global environment, a tighter fiscal stance will be targeted in 2010. Fiscal revenues will be sustained by higher growth and revenue mobilization efforts, and spending policies will remain prudent in order to lower the basic deficit below 1 percent of GDP.

C. Structural Reforms and Management of State-Owned Enterprises

16. The authorities have advanced on a range of structural reform issues. They have adopted a financial sector development strategy, which reflects the recommendations of the FSAP conducted in January 2008, and started its implementation. Private sector development should also start benefiting from the recent adoption of an action plan to improve the business environment and the opening of a one-stop window to facilitate creation of new enterprises. Finally, the authorities launched a successful call for tenders for the privatization of SOTELMA, but they are still negotiating with the winning bidder.5 Despite these advances, progress has been uneven. In particular, reform of the public sector is lagging. (Box 1)

LOI
Para 26

Box 1.Budgetary Exposure to Parastatals

In addition to a budget subsidy for payment of its external debt, the cotton parastatal, CMDT, has financing needs equivalent to 1 percent of GDP for the 2008/09 and 2009/10 cotton campaigns and ¾ percent of GDP for restructuring and clearance of arrears. The water and electricity utility, EDM, has also required public subsidies since its failed privatization in 2005; its cash liability and payment arrears are estimated at the end of 2008 at ½ percent of GDP. The Housing Bank of Mali, BHM, is insolvent and experiencing severe liquidity problems. As of 2007, the bank had negative net worth (½ percent of GDP), 40 percent of its loans were nonperforming, and it had a large operating loss. Its upcoming restructuring plan is expected to have budgetary implications beyond the recent recapitalization (almost 1 percent of GDP). SOTELMA’s privatization revenue would provide sufficient resources to finance the structural reforms, but the transaction has yet to be finalized and the budgetary constraint remains tight.

17. Reform of the parastatal sector is now receiving renewed focus. Work is going forward on privatizing CMDT, and on restructuring, and possibly privatizing, BHM. Regulation of EDM, the electricity company, is being reinforced, and the water division may be spun off. The fertilizer and irrigation programs (notably at the Niger River Authority) are also being looked at for efficiency gains. These are difficult reforms: progress continues to be slow and setbacks are common, as was the case during the previous PRGF arrangement. Nevertheless, the work will continue over the next year, with benchmarks on this and on public financial management reform for the third and fourth reviews (Box 2).

LOI
Paras 28–32

Box 2.Structural Conditionality for the Third and Fourth Reviews

Structural conditionality, limited to four benchmarks for each review, is being refocused on revenue mobilization and public financial management and on macroeconomic aspects of key economic sectors.

Reforms of public financial management will aim at improving budget execution and treasury management, and statistical reporting, with a view to ensuring better coordination between the budget and the Treasury and preventing domestic payment arrears.

Finalizing a disengagement strategy from the Housing Bank of Mali will ensure the bank’s return to profitability and its long-term viability while reducing systemic risk to the banking sector. Implementation of a financial plan covering the activities of the cotton sector will improve governance and transparency and help limit budgetary exposure—and potential slippages—until CMDT is privatized. Similarly, a targeted system of agricultural subsidies with a monitoring and evaluation system will promote the effectiveness and efficiency of a high-profile component of public spending. Finally, a macroeconomic analysis of the mining sector will support policy formulation as this important sector (80 percent of export revenue) faces the challenge of declining production and reserves.

D. Program Modalities

18. A number of modifications are proposed to the modalities of the PRGF arrangement because of changes in the policy environment and the monitoring needs of the Mali program. These changes, requested in the authorities’ LOI and detailed in the TMU, are focused in four areas:

  • To keep pace with the development of the regional WAEMU capital market, it is proposed to expand the exceptions to the PC on nonconcessional borrowing. Following the example of programs in regional money centers Senegal and Côte d’Ivoire, local currency financing from WAEMU-resident banks is to be permitted not only through bond and bill issuance (as at present) but also through direct lending to the government.

  • The authorities are targeting a substantial reduction in the payment float in 2009. As part of program monitoring, the staff is proposing a symmetric adjuster to revise the ceiling on domestic financing, and the subceiling on bank and bond financing, upward for reductions in the payment float greater than the amount targeted under the program, and downward for lesser reductions.

  • It is proposed that the structural PC restricting the introduction of new customs exemptions be removed. This reflects not only the change in Fund policy on structural PCs but also the introduction of a quantitative PC on government revenue during the first review, which adequately safeguards fiscal revenue. Staff are not aware of any exemptions contravening the PC during the first year of the program.

  • To reflect both the lower accrual deficit and the additional domestic financing occasioned by the reduction in payment float, recapitalization of BHM, and delayed settlement of the December 2008 bond issuance, staff supports the authorities’ request for modification of the end-June 2009 quantitative PCs and benchmarks.

IV. Staff Appraisal

19. Economic performance under the PRGF program has been broadly satisfactory, though structural reforms lost momentum. All quantitative targets were met at end-December 2008. However, with one of three structural PCs and three of four structural benchmarks not observed, there is a clear need for increased attention to the structural reform elements of the program. The actions the authorities have taken to restore the track record of structural reforms is a commendable start. Moreover, for BHM, whose incomplete restructuring plan led to the request for a waiver, the government has already undertaken key parts of the restructuring, including recapitalization, and has initiated work towards privatization. On this as in other areas, consistent follow-up will be critical to achieving program objectives and raising growth to levels that would reduce poverty faster.

20. Despite slower growth prospects in 2009, revisions to the macroeconomic framework are modest in the absence of a deterioration of the balance of payments. Inflation is expected to subside further. Robust fiscal revenue in the first five months of 2009 bodes well for attainment of the annual revenue targets. Fiscal policy is reducing the payment float and VAT credit arrears while sustaining a strong fiscal impulse and responding prudently to new expenditure pressures. While the nonobservance of the PC on nonconcessional external borrowing was due to an unfortunate confluence of factors, it highlights the risks of reliance on bank financing. Given the high cost of domestic borrowing, it will be especially important to closely monitor the government’s cash flow to avoid excessive recourse to such financing.

21. Since the recovery of major economies from their current recession is expected to be slow, returning to the more rapid growth necessary to reduce poverty will require redoubled efforts to enhance productivity. The Malian authorities are addressing some weaknesses in critical sectors, notably with regard to the major state enterprises and public finance management. The impetus of the structural reform program must be sustained, particularly for reforms aimed directly at competitiveness, if Mali’s growth trajectory is to be shifted upward.

22. The global crisis has had a limited impact so far on Mali. While the country is still projected to benefit from a sharp improvement of its terms of trade in 2009, risks remain. The principal sources of risk are linked to remittances, a wait-and-see attitude in the private sector, a possible reversal of the terms of trade, and adverse climatic conditions.

23. On the basis of the satisfactory record of the authorities so far, staff recommends completion of the second review of the current PRGF arrangement and approval of the requests for two waivers and modifications of performance criteria.

Attachment I Letter of Intent for the 2nd Review

Bamako, Mali

June 19, 2009

Mr. Dominique Strauss-Khan

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Mr. Strauss-Kahn:

1. As indicated in detail in the Letter of Intent dated November 18, 2008, macroeconomic management by the Malian authorities in 2008 was geared primarily toward mitigating the impact of soaring international energy and food prices. Whereas government policies in that regard helped safeguard social peace and satisfactory implementation of the economic program, structural reform measures encountered a number of delays that the authorities made every effort to remedy in the first half of 2009.

2. Mali’s real GDP increased by 5.1 percent in 2008, particularly owing to the vibrancy of the primary and tertiary sectors. The strong performance of rice and cereal production, mainly as a result of good rainfall, largely made up for the downturn in cotton production associated with the sector’s structural problems. The tertiary sector was propelled by telecommunications, transportation, and financial services in particular. By contrast, the value-added of the secondary sector fell by 5.3 percent as a result of a slight drop in gold production and the slowdown in food processing and textiles.

3. Annual inflation was brought to 7.5 percent at end-2008, after climbing to 13 percent in September 2008 due to pressures from global food and oil markets, and receded to 3.2 percent at end-April 2009. The difficult external environment contributed to a very slight increase in the balance of payments current account deficit in 2008 and to a decline in foreign reserves, partly offset by the privatization of the Banque internationale du Mali (BIM).

4. The basic government budget deficit was limited to 1.2 percent of GDP, compared with the program target of 1.8 percent. Indeed, to maintain macroeconomic stability, and in the face of uncertainties about how long the food and energy crisis would last, the government cut budgetary spending by nearly 1 percent of GDP, mainly curtailing domestically-financed capital expenditure. The savings so achieved more than made up for the revenue losses generated by the customs duty exemptions granted on a number of food products and by the adjustments made in the taxation of oil products to lower the social cost of the spike in world prices for these goods. However, the improvement in the basic fiscal balance was accompanied by cash flow problems and a marked increase in the government’s pending payments to its suppliers, which totaled CFAF 96 billion at end-2008.

5. In this context, we observed all of the quantitative performance criteria under the program for end-2008 (see table). We also observed the two structural performance criteria on not granting new customs exemptions unless prescribed by law and on issuing the invitations to bid for the privatization of the national telecommunications company (SOTELMA) by end-December 2008, as well as the structural benchmark regarding the adoption in Council of Ministers of the blueprint for the Niger River Authority.

6. There were a number of delays in implementing the other structural reforms subject to conditionality, but corrective action has been taken to remedy these delays.

  • In the context of the performance criterion regarding the plan to restructure the national housing bank (BHM), a memorandum on the status of BHM restructuring was forwarded to the Banking Commission in March 2009. Although that memorandum did not meet all the conditions of the criterion established for end-March, it was supplemented in June 2009 with a report, prepared in collaboration with Bank and Fund staff, that was forwarded (as a prior action) to the Banking Commission and the Central Bank of West African States (BCEAO). The report presents several scenarios for further restructuring aimed at restoring the bank’s solvency and profitability, in particular through changes in the principal prudential ratios. Accordingly, the formal conditions for observing the criterion were met only in early June, but the studies conducted should help us to take a decision by end-2009 regarding government divestiture of the BHM. Moreover, we already recapitalized the bank in March 2009 by transferring government deposits there to it and by moving a part of the portfolio of the national housing office (OMH), two of the measures envisaged in our previous Letter of Intent. In light of the corrective actions taken, we request a waiver for non-observance of the performance criterion concerning the BHM.

  • In the cotton sector, the government remains committed to privatization of the Malian Textile Development Company (CMDT) in 2010. In that regard, it has pursued reforms to reorganize the sector and restructure the CMDT, and the committee for the restructuring of the cotton sector is in the process of renewing the contract of the privatization consultant to ensure continued technical support for the privatization. The highly precarious financial position of the CMDT and the uncertainties related to the reform of the sector in a challenging international context have continued to affect performance in the 2008/09 crop season, the main results of this being delays in making decisions about the 2009/10 crop season. The decisions setting the producer price at CFAF 170 a kilo by the commission in charge of implementing the pricing mechanism for cotton and the price of fertilizers with an implicit subsidy were only taken in mid-May 2009. To ensure a proper start of the 2009/10 crop season, the government also decided to pay the remaining balance owed to producers for the 2008/09 crop season, reactivated the cash flow monitoring committee for the sector, and confirmed the allocation of roles for financing this next crop season. Despite these measures, delays in orders and in deliveries of inputs as well as the longstanding problems of the sector could make a substantial short-term increase in production more difficult.

  • The principle of an average adjustment of 4 percent in electricity rates as of July 1, 2009, which does not affect the lowest brackets of the lifeline tariff, was adopted by an interministerial committee in March with a view to securing electricity sector viability, but the directive from the Water and Electricity Regulatory Board (CREE) specifying the terms under which that measure would be implemented and the new applicable rates was issued only on May 26 (prior action).

  • The adoption of a new institutional framework for water and electricity, which was scheduled to occur by end-March, is awaiting the completion of an external study by an international consultant. The first phases of the study have helped reduce the scope of decision making to a limited number of scenarios that are still subject to more in-depth analyses and will be discussed in the context of workshops with the participation of the various stakeholders. The next phases of this reform will be the subject of consultations with the World Bank, particularly as part of the new energy program recently negotiated with the Bank.

7. Performance under the program has continued to be satisfactory in 2009. Quantitative benchmarks at end March 2009 have been met except for the ceiling on domestic financing and the sub ceiling on bank and market financing which were breached by small margins because a bond issue launched at end-December 2008 was recorded on January 2, 2009. Revenue collection was sustained and in line with the program, while an effective budget regulation has allowed for a substantial reduction in the payment float.

8. The Government have taken measures to refund the stock of VAT credits accumulated at end June 2008 by the mining companies. However, the unfavorable conditions on the regional financial market did not allow for this refund to be financed through a bond issue, as envisaged in our previous Letter of Intent. The government therefore asked Ecobank’s Malian subsidiary to raise the necessary funding as a lead bank. Thus, the government signed in April and May 2009 two loan conventions in an amount of CFAF 37.3 billion, with several banks, including Ecobank Mali acting as lead and other Malian banks, but also Ecobank subsidiaries headquartered in other member countries of the WAEMU as well as in CEMAC. In doing so, the government did not realize, in good faith, that the amounts thus borrowed with banks non residents in Mali are subject to the continuous performance criterion prohibiting the contracting and guaranteeing nonconcessional external debt. In addition, the loans were contracted without an evaluation of their grant element which turns out to be lower than 35 percent, even without taking into account interest costs that the mining companies have accepted to bear through an equivalent reduction of their claims on the government.

9. Against this background, we request a waiver for the non observance of the continuous performance criterion on non concessional external borrowing, based on: (i) our commitment to eliminate or refinance within the WAEMU before the completion of the third review, the part of the above mentioned loans granted by banks from the CEMAC (CFAF 3.5 billion); (ii) measures taken to ensure a more systematic evaluation of the grant element of all loans that the government considers contracting or guaranteeing; and (iii) the fact that bank debt contracted by the government within WAEMU are economically equivalent to the bonds that we had intended to issue on the regional financial market, as permitted under the exclusion provided for in the Technical Memorandum of Understanding (TMU). From this standpoint, the recourse to bank financing rather than bond financing can be considered as constituting a minor deviation with regard to the performance criterion on nonconcessional external borrowing. Looking forward, we request an amendment to the TMU with a view to exclude from the scope of the performance criterion on non concessional borrowing, not only drawing on IMF facilities, and bills or bonds issued on the regional financial market but also loans CFA franc loans contracted with WAEMU residents.

Outlook for 2009

10. The decline in world prices for petroleum and foodstuffs since September-October 2008 allowed us to turn our attention to the potential impact of the global recession on Mali. The government’s priority remains to maintain a stable macroeconomic and fiscal framework, notwithstanding the current world economic problems. Accordingly, the government will deepen structural reforms with a view to achieving its medium-term growth and poverty reduction objectives. The need for this deepening reflects the progress and shortfalls noted in a report on the implementation of our Poverty Reduction Strategy Paper (PRSP) in 2008; we expect to finalize the report and forward it to the IMF by end-September. The support of our development partners remains key to the pursuit of our efforts in the implementation of the PRSP.

11. Our external position is expected to improve in 2009 owing to positive developments in our terms of trade, driven both by the favorable expected price of gold, which provides more than two-thirds of our export receipts, and by the downtrend in oil and food prices in a context of global recession. Nevertheless, these encouraging effects may well be partly negated by a fall in our receipts from cotton exports and a slump in revenue from tourism and migrants’ remittances. Moreover, our economy remains particularly dependent on rainfall levels and is vulnerable to a reversal in the terms of trade and to further external shocks. As a result, although the access to Fund resources under the PRGF seems appropriate for the time being, a future request for augmentation cannot be ruled out.

12. Under current circumstances, real GDP growth is expected to remain at about 4 percent, especially if our efforts to support agriculture are accompanied by good rainfall. It is anticipated that growth in the secondary sector will slow, as the expected decline in gold and manufacturing production is unlikely to be offset by the buoyancy of a the construction sector driven by public investment. The tertiary sector, for its part, may well suffer from a wait-and-see attitude from consumers and producers in light of the global recession.

13. The Central Bank of West African States (BCEAO) will continue to conduct prudent monetary policy at the regional level, with a view to anchoring expectations and paving the way for the continued rollback of inflation to a level projected at 2.5 percent for Mali at end-2009. The BCEAO will continue ensuring that there is adequate liquidity in the banking sector of the West African Economic and Monetary Union (WAEMU) by pursuing operations to inject liquidity at different maturities.

Fiscal policy

14. Fiscal policy for 2009 is complicated by the uncertainties related to the global crisis and its potential impact on Mali, by the burden of a large payment float at end-2008, and by new fiscal pressures related to implementation of structural reforms and to government decisions to support the agricultural sector. Moreover, the ongoing recapitalization of the BHM and the refund of VAT credits accumulated by the mining companies in recent years are generating substantial financing requirements.

15. In this context, the government will pursue prudent fiscal management by containing the basic government budget deficit in 2009 at 1½ percent of GDP. This target, which is 0.3 percentage points of GDP above the 2008 level, will be accompanied by a substantial increase in execution of the externally financed capital budget, the aim being to support the national economy through the global crisis. However, this level is below the previous program target, as we seek to achieve a net reduction in the government’s pending payments of up to CFAF 30 billion, or 0.7 percentage points of GDP.

16. Budget revenue was strong in the first five months of this year. This good performance, which is consistent with program objectives, is a sign of the progress made in tax administration and the government’s decision to restore the level of oil taxation as of end-2008 to what it was before the 2008 oil shock. In light of our firm intention to maintain oil taxation at its current level and to pass on international price changes to the domestic market, this performance leads us to maintain our budget revenue targets for 2009 at the level indicated in the Budget Law. Revenue developments will, however, be monitored carefully in coming months, given the uncertainties of the domestic and international economic situation.

17. We have reduced the 2009 budget expenditure target by nearly one-half of a percentage point of GDP (CFAF 22 billion) so as to free up most of the resources necessary for reducing the payment float mentioned above. The latest expenditure program also takes into account new spending on transfers and subsidies to support the restructuring of the BHM (CFAF 1.8 billion) and ensure a successful 2009/10 cotton crop season (CFAF 15.4 billion), as well as the reallocation of certain budget headings to finance the subsidies for agricultural inputs decided by the government for 2009 (CFAF 10 billion). The new transfers require savings of about CFAF 9 billion on goods and services and of CFAF 30 billion on domestically-financed capital expenditure. Despite these budgetary adjustments, the level of self-financed capital expenditure as a percentage of GDP remains similar to that of previous years (about 3 percent of GDP), whereas current budget spending and externally financed capital expenditure will increase to 13.4 and 7.3 percent of GDP, respectively. This is not expected to hinder proper functioning of the government or implementation of the government’s poverty reduction policies.

18. The overall budget deficit (on a commitment basis and excluding grants) is therefore expected to represent 9 percent of GDP in 2009, compared with 5.6 percent in 2008. In light of the modest increase in external financing, the programmed reduction in pending payments, and the planned refund of VAT credits to the mining sector, domestic financing will rise to nearly 2½ percent of GDP.

19. In light of global uncertainties, the government stands ready to take any steps necessary, in consultation with the IMF, to ensure that it meets its fiscal objectives in 2009. In this regard, fiscal policy for 2009 is supported by an effort to regulate budget execution so as to prevent and limit potential slippages. We have thus drawn up a cash flow plan involving a temporary freeze on certain non-priority expenditure in the first three quarters of the year, with a view to generating a margin of safety that could be used in the last quarter, circumstances permitting, thereby avoiding a new rise in the payment float at end-2009. This plan will be aligned with the budget classification by end-September 2009, with a view to ensuring: (i) the quarterly monitoring of budget execution in terms of commitment, validation, payment order authorization, and actual payment of expenditures; and (ii) better regulation of budget execution on the basis of resource availability and the priority status of public expenditure (structural benchmark).

20. With a view to strengthening domestic debt management, an evaluation of the payment float at end-March 2008 was made by the Auditor General’s office and one at end-March 2009 was made by the Controller-General’s Office and the Inspectorate-General of Finance. These will be built upon, by end-2009, through the implementation of a system to monitor budgetary float in the context of improvements in the Treasury’s accounting, cash flow management, and information systems, in consultation with IMF staff (structural benchmark). The Government intends to request IMF technical assistance in this regard. The above-mentioned evaluation of the unpaid bills at end-March 2009 will be updated at end-2009. This update will lead to a report that will mention payments effected on the stock of unpaid bills at end-March 2009 and will be transmitted to the IMF before end-January 2010.

21. We have continued our efforts to improve fiscal management supported by our external partners in the context of the action plan for improving and modernizing public finance (PAGAM/GFP). The 2008 implementation of the PAGAM was reviewed positively by our development partners in May 2009 and will subject to an evaluation by an international consultancy firm, whose recruitment is expected to follow a call for interest in April 2009. This first generation of the PAGAM/GFP has allowed, in particular, for the interconnection of spending authorities, the revision of the Public Procurement Code, the implementation of the Public Procurement Regulatory Authority, and the adoption by the Government of a draft law to reinforce the Accounts Section of the Supreme Court. To consolidate these achievements, the government will formulate a second generation of reforms based on the norms of the Public Expenditure and Financial Accountability (PEFA) framework.

22. Improving domestic resource mobilization remains a major priority of the Government. To that end, the Directorate-General of Taxes (DGI) has conducted studies in preparation for the creation of a tax center for medium-sized enterprises, the start-up of which is planned by end-September, 2009 (structural benchmark). In addition, to refocus the management of overdue taxes, the DGI has committed to compiling a separate inventory of unrecoverable claims. However, the tax administration is finding it difficult to implement the pertinent procedures as well as to manage and monitor tax exemptions because of frequent taxpayer challenges to the interpretation of the procedures and documents in question. Finally, in the context of the second memorandum of understanding with the mining companies, the government has taken temporary measures to prevent the accumulation of VAT credits but has started discussions on a definitive and sustainable approach to the problem of managing VAT credits. The government is seeking technical assistance from the Fund to support the reforms and discussions initiated by the DGI on these various fronts.

23. The reform of the Directorate-General of Customs (DGD) will also be continued in 2009, through better monitoring of exemptions in accordance with the government’s commitments and through the creation of nine mobile offices and teams in the context of a four-year program to change the customs surveillance map. In addition, the DGD will strengthen the X-ray scanning of imported merchandise and the import pre-shipment inspection program. It will also implement the new automobile transit procedure and will continue to expand the application of ASYCUDA ++ to include additional frontier posts and its offices in the ports of Dakar and Abidjan.

24. Also, to improve government finance statistics in collaboration with the BCEAO, by end-2009 the authorities will draw up: (i) a complete inventory of the accounts included in the banking system’s net credit to government; and (ii) a methodology for recording of those accounts, based on the appropriate classification for them in the fiscal reporting table (structural benchmark).

25. In addition, important steps have been taken over the past few years to improve strategic planning through the medium-term budgetary framework (MTBF), the medium-term expenditure framework (MTEF), and the program budget. This results-oriented management approach involving a closer link between the budget and sectoral and national strategies will be further developed. In this context, work will begin on an analysis of the methodologies used for preparing the MTEF. The government also intends to implement the 2009–2015 action plan to better implement program budgeting that was prepared with IMF technical assistance and in particular: (i) realigning normative, budgetary, and accounting systems on the program budgeting framework; (ii) making managers accountable and redefining the roles of program budget operators; and (iii) improving the public financial management system.

Structural reforms

Financial sector

26. In July 2008, the cabinet approved the Financial Sector Development Strategy, which reflected recommendations of the Financial Sector Assessment conducted jointly by the Bank and the Fund. The committee created to monitor its implementation will be operational by end-September 2009. Among the recommendations already implemented, particularly noteworthy are the following: (i) the privatization of the International Bank of Mali (BIM); (ii) the restructuring of Initiative Credit, LLC (CI-SA) through its merger with the Solidarity Bank of Mali (BMS SA); and (iii) the adoption by the Government of a new regulatory framework for microfinance.

27. Our financial system has remained virtually unaffected by the global financial crisis, due mainly to its low level of integration into international financial markets. To increase the soundness of the regional banking system, the Council of Ministers of the West African Monetary Union decided in September 2007 to raise the minimum capital required of banks and financial institutions by end-2010 to CFAF 5 billion and CFAF 1 billion, respectively. Following this first phase, a timetable will be established to raise the minimum capital requirement to CFAF 10 billion for banks and CFAF 3 billion for financial institutions. The monetary authorities have also decided to strengthen banking supervision.

28. The restructuring of the BHM is a top priority for the authorities. Repairing the bank’s profit and loss statement will require the injection of new resources to permit the resumption of lending on a sustainable basis. Based on the restructuring plan finalized with technical assistance and on the advice we have recently requested from the BCEAO, the Government will decide by end-2009 on the strategy to be adopted and a timetable for government divestiture from the BHM (structural benchmark). Additional technical assistance may be needed to establish the method and the timetable for implementation of our decision. Meanwhile, the government will assume responsibility for the interest arrears due to a syndicate of banks (CFAF 1 billion) and the cost of staff redundancies, estimated at CFAF 0.8 billion and aimed at reducing personnel costs by 25 percent.

29. In the context of improving the financial position and management of the social security institutions (notably by the parametric reform of the Malian Retirementment Fund, CRM), the government has forwarded to Parliament the draft law establishing a Pension Code for civil servants, military personnel, and members of parliament. The National Assembly plans to debate this legislation in June and July 2009.

30. Furthermore, some microfinance institutions are in need of stronger management and information systems. Assistance will be sought from the World Bank to conduct activities for monitoring the national microfinance development action plan.

Agricultural sector

31. The government considers development of agriculture a major objective, given this sector’s potential for generating economic growth and poverty reduction. In the wake of the Rice Initiative, the government has decided to maintain its support for the rice sector and to extend that support to wheat, maize, and cotton, so as to ensure improved food security and the recovery of cotton. Within the framework of its support for this sector and preparation of the 2010 budget, the government will set up, by end-September 2009, a system for providing subsidies for inputs to cereal and cotton farming. These subsidies will be targeted, limited, and supported by a monitoring and evaluation mechanism (structural benchmark). The annual budgetary cost will not exceed an amount equivalent to 0.5 percentage points of GDP in 2009 and 2010. Improving the management of natural resources in the area covered by the Niger River Authority is also an important concern for the government. The recent establishment of a ministerial-level secretariat in the Office of the Prime Minister should provide a greater understanding of government policy and facilitate the dialogue with our development partners.

32. Cotton sector recovery remains a major government priority, given the importance of this sector for employment, agricultural development, and economic growth. To this end, a financial road map for the 2009/10 crop season will be formulated by end-September 2009, to facilitate effective monitoring of the financial operations of the CMDT (revenue, obligations, payments, indebtedness, and past-due balances vis-à-vis other actors in the sector). This road map will be updated on a monthly basis and forwarded to Fund staff (structural benchmark). Recovery of the sector is also dependent on extensive restructuring of the sector and of the CMDT with a view to its upcoming privatization. To that end, the CMDT has been split into a holding company and four regional subsidiaries, each endowed with positive net assets. In addition, two management and monitoring bodies (Cotton Classification Office and Cotton Interprofessional Association) have been set up, and an Economic Interest Group that includes the CMDT, the Producers Union, and the Office of the Upper Niger Valley has been formed to manage inputs.

Gold sector

33. The mining of our gold resources has, for the past several years, provided a large portion of our budgetary revenue and our export receipts. Our economy is therefore vulnerable to fluctuations in world gold prices. Moreover, our principal gold mines will probably be exhausted within a few years. In this context, an interdisciplinary government team will conduct, by end-2009, a study on the macroeconomic impact (balance of payments, employment, growth, budget) of this sector and on its medium-term outlook (structural benchmark). In addition, in the context of Mali’s candidacy to join the Extractive Industries Transparency Initiative (EITI), a report has been completed to compare the information provided by the mining companies regarding their net tax contributions with the data in the government accounts. The preliminary draft report is being reviewed by both parties to reconcile differences.

Telecommunications sector

34. The government is continuing its discussions with the entity submitting the best bid among the offers received last January for privatizing the national telecommunications company (SOTELMA) at the earliest opportunity. The macroeconomic impact of that operation will depend largely on how the expected receipts are used. The government will consult with Fund staff on this matter.

Program modalities

35. The discussions for the third review under the PRGF arrangment will focus on the implementation of strucural reforms and the draft 2010 budget, taking into account the anchoring of public finances on convergence towards the relevant WAEMU norms. These discussions will also cover a debt sustainability analysis to be prepared by the staffs of the IMF and the World Bank in collaboration with the Public Debt Office.

36. Performance under the program will be assessed as per Tables 1 and 2 and the attached technical memorandum of understanding. In this context, we request: (i) the addition of a new adjustor for the quantitative performance criteria on the net domestic financing and the net bank and market financing of the budget to take into account deviations from the targeted reduction of the domestic float; (ii) the removal of the structural performance criterion barring customs exemptions that are not explicitly provided by law or approved by the Council of Ministers, in line with the new Fund policy on structural conditionality and in light of the existing indicator on net tax revenue; (iii) the exclusion of bank loans originating in the WAEMU region from the definition of external debt and from the zero ceiling on nonconcessional borrowing; and (iv) a modification of the performance criteria for end-June 2009 to take into account the increased bank financing needed for the reduction of the payment float and the recapitalization of the BHM. The third review is scheduled to be completed by end-December 2009, on the basis of performance criteria for end-June 2009, and the fourth review is scheduled to be completed by end-May 2010 on the basis of the performance criteria at end-December 2009.

Table 1.Mali: Quantitative Performance Criteria and Indicative Targets for 2008–091
20082009
Dec.MarchJuneSep.Dec.
Perf. CriteriaAdjustedActualIndic. TargetsAdjusted TargetsPrel.6Perf. CriteriaRev. Perf. CriteriaIndic. TargetsRev. Ind. TargetsIndic. TargetsPref. Criteria
Quantitative performance criteria 1(CFAF billions)
Net domestic financing of the Government (ceiling)240.340.3−8.110.011.813.125.045.035.050.043.033.4
Of which: Bank and market financing249.749.7−28.415.016.822.325.080.030.090.035.062.5
Cumulative increase in external payments arrears (ceiling)30.00.00.00.00.00.00.00.00.00.00.00.0
New external borrowing at terms of one year or more contracted or guaranteed by the government on nonconcessional terms3,40.00.00.00.00.017.570.00.00.00.00.00.0
New short-term external credits (less than one year) contracted or guaranteed by the government (ceiling)30.00.00.00.00.00.00.00.00.00.00.00.0
Net tax revenue5514.7514.7519.4140.0140.0143.5290.0290.0430.0430.0603.0603.0
Financial indicators (floors)
Basic fiscal balance−67.0−67.0−48.1−10.0−10.017.1−30.0−20.0−50.0−40.0−82.0−62.0
Memorandum items:
External budgetary assistance during the year1555.754.120.06.440.048.060.032.086.092.0
HIPC Initiative debt relief112.710.91.01.86.38.111.211.2
Table 2.Mali: Structural Conditionality for Second Review of the PRGF-Supported Program
MeasuresTest DateStatus
At test dateOn June 15, 2009
Prior actions
1Transmittal of the report for the restructuring of the BHM to the Banking Commission for review and to the Central Bank BCEAO for guidanceDone (June 11, 2009)
2Publication of a directive by the water and energy regulating body (CREE) that sets the conditions for the implementation of a 4 percent average increase in the electricity tariff on July 1, 2009.Done (May 26, 2009)
Performance criteria
1Elimination of all customs exemptions not explicitly provided for by law (unless approved by Cabinet of Ministers)Continuous PCObservedObserved
2Launch of a call for tenders for the sale of Government shares in SOTELMAEnd-December 2008ObservedObserved
3Submission to the Regional Banking Commission of a restructuring plan for BHM, raising capital and liquidity ratios to WAEMU prudential normsEnd-March 2009Not observedObserved (see prior actions)
Benchmarks
1Adoption by the Council of Ministers of the reform master plan and of a development contract at the Niger AuthorityEnd-December 2008ObservedObserved
2Government announcement of a new timetable for the transition phase before privatization of the CMDT clearly assigning roles for financing the 2009/10 harvest beginning January 2009End-December 2008Not observedObserved
3Adoption of a new tariff formula for electricity pricingEnd-March 2009Not observedObserved (see prior actions)
4Adoption by the Council of Ministers of a new institutional public service framework for water and electricityEnd-March 2009Not observedNot observed (delay in completion of external study; reform to be followed by World Bank)

37. The Government believes that the policies set forth in the letter are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Mali will consult with the Fund on the adoption of these measures and in advance of any revision to the policies contained in the letter, in accordance with the Fund’s policies on such consultation. The Government will provide Fund staff with any information required on progress made in implementing the economic and financial policies and monitoring program objectives. During the program, the Government will not introduce or intensify any exchange restrictions, multiple currency practice, or import restriction for balance of payments of purposes, nor conclude any bilateral payment agreements that are inconsistent with Article VIII of the Fund’s Articles of Agreement. The government authorizes the Fund to publish this letter and the staff report relating to this request.

Sincerely yours,

/s/

Mr. Sanoussi Touré

Minister of Economy and Finance

Republic of Mali

Table 3:Mali, Structural Benchmarks for the Third and Fourth ReviewsUnder the PRGF Program
For end-September 2009 (in the context of the 3rd program review)
1. Regarding revenue mobilization, put in place the tax center for medium-sized enterprises (CIME) and start up its activities.
2. Regarding government cash flow management, prepare a government cash flow plan consistent with budget nomenclature (section, economic code) to facilitate (i) quarterly monitoring of budget execution in terms of commitment, validation, payment authorization, and payment of expenditure, and (ii) better alignment of budget execution with available resources.
3. Regarding monitoring of the cotton sector, and in consultation with the IMF, prepare a monthly financial chart for the 2009/10 crop season to promote the effective monitoring of financial operations (revenue, commitments, payment, debt, amounts unpaid) of the various participants in the sector (producers, CMDT, suppliers, banks, the government).
4. Regarding government support for the agricultural sector and preparation of the 2010 budget, put in place a dedicated, targeted input subsidization system for grain and cotton crops, including modalities for implementation, follow-up, and assessment.
For end-December 2009 (in the context of the 4th program review)
1. Regarding domestic debt management, on the basis of the Auditor General’s report on the budgetary float at end-March 2008 and the report to be produced by the Controller General’s Office and the Inspectorate General of Finance at end-March 2009, put in place a system to monitor budgetary float supported by improvements in the Treasury’s accounting, cash flow management, and information systems, in consultation with IMF staff.
2. Regarding strengthening the banking sector, by government decision, adopt a strategy and timeframe for government divestment of the Banque de l’Habitat du Mali (BHM).
3. Regarding growth, finalize the government study on the macroeconomic impact of the gold mining sector (balance of payments, growth, employment, budget) and its medium-term prospects.
4. Regarding public finance statistics, in conjunction with the BCEAO, prepare (i) an exhaustive inventory of the bank accounts taken into account in the net government position, and (ii) an appropriate methodology for recording movements on these accounts, based on an accepted classification (such as projects, correspondents, etc.), in the government flow of funds table (TOFE).
Attachment I, Annex I Technical Memorandum of Understanding

1. This technical memorandum of understanding defines the performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement. It also sets out the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program-monitoring purposes.

I. Definitions

2. Unless otherwise indicated, the Government is defined as the central administration of the Republic of Mali and does not include local administrations, the central bank, or any other public entity with autonomous legal personality that is not included in the table of Government financial operations (TOFE).

3. The definitions of “debt” and “concessional loans” for the purposes of this memorandum of understanding are as follows:

  • (a) Debt is defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (see Decision of the Executive Directors of the IMF No. 12274–00/85, August 24, 2000).

  • (b) A loan is considered concessional if, on the date the contract is signed, the ratio of the present value of the debt, based on the reference interest rates, to the nominal value of the debt is less than 65 percent (i.e., a grant element exceeding 35 percent). The reference interest rates used in this assessment are the commercial interest reference rates (CIRRs) established by the Organization for Economic Cooperation and Development (OECD). For debts with a maturity exceeding 15 years, the ten-year reference interest rate published by the OECD is used to calculate the grant element. For shorter maturities, the six-month market reference rate is used.

II. Quantitative Performance Criteria and Financial Indicators

Except as noted, the following financial variables shall constitute performance criteria at end-June and End-December and financial indicators otherwise. The basic fiscal balance is a financial indicator at all test dates.

A. Ceiling on Net Domestic Financing of the Government; Subceiling on Net Domestic Bank and Market Financing of the Government

4. Net domestic financing is defined as the sum of (i) net bank credit to Government, as defined below, (ii) other Government claims and debts vis-à-vis national banking institutions, and (iii) nonbank financing of the Government.

5. Figures on net bank credit to Government are calculated by the BCEAO. Figures on nonbank financing are calculated by the public treasury, and are final in the context of the program.

6. Net bank credit to Government is defined as the balance between Government debts and Government claims vis-à-vis the central bank and commercial banks. The scope of net bank credit to Government is that used by the Central Bank of West African States (BCEAO) and is consistent with established Fund practice in this area. It implies a broader definition of Government than that specified in paragraph 2 by also including local governments, and selected autonomous government agencies and projects. Government claims include the CFA franc cash balance, postal checking accounts, secured liabilities (obligations cautionnées), and all deposits with the BCEAO and commercial banks of public entities, with the exception of industrial or commercial public institutions (EPICs) and public enterprises, which are excluded from the calculation. Government debts to the banking system include all debts to these same financial institutions. Deposits of the cotton stabilization fund and Government securities held outside the Malian banking system are not included in the calculation of net bank credit to Government.

7. Nonbank financing of the Government is defined as nonbank market financing and other nonbank financing. Nonbank market financing includes sales net of repayments of Government bills and bonds held outside national banking institutions. Other nonbank financing of the Government includes proceeds from the sale of Government assets, repayments on domestic debt to nonbank creditors, and other net claims on the treasury. The receipts from sale of Government assets are defined as the proceeds from the sale, effectively received by the Government during the fiscal year, of all or part of the shares held by the Government in privatized enterprises. In the event that payments in respect of these sale transactions are expected to extend beyond the fiscal year, the residual will be included in the calculation of nonbank financing of the Government in each of the subsequent years, in accordance with the annual scheduling of the expected payments.

8. Net domestic bank and market financing of the Government is defined as the sum of (i) net bank credit to Government, as defined above, (ii) other Government claims and debts vis-à-vis national banking institutions, and (iii) nonbank financing of the Government through the issuance of securities to nonbanks.

Adjustment factors

9. The ceiling on the change in net domestic financing of the Government will be adjusted down (up) if external budgetary assistance exceeds (falls short of) the program amount. Budgetary assistance is defined as grants, loans, and debt relief (excluding project loans and grants, IMF resources, and debt relief under the Initiative for Heavily Indebted Poor Countries). Adjustment will be made at a rate of nil percent for amounts up to CFAF 10 billion; 50 percent for amounts from CFAF 10 billion up to CFAF 25 billion; and 75 percent for amounts in excess of CFAF 25 billion.

10. The ceiling on the change in net domestic financing of the Government and the sub-ceiling on bank and market financing will be adjusted up in the amount of the face value of the securities issued relating to VAT and duty refund payments accrued during 2006 and 2007 up to a maximum of CFAF 62 billion.

11. The ceiling on the change in net domestic financing of the Government and the sub-ceiling on bank and market financing will be adjusted up (down) if the actual net reduction of the payment float exceeds (falls short) of the programmed amounts (CFAF 45 billion at end-June and end-September 2009, and CFAF 30 billion at end-December 2009.

B. Nonaccumulation of External Public Payments Arrears

12. External payments arrears are defined as the sum of external payments due and unpaid for external liabilities of the Government and foreign debt held or guaranteed by the Government. The definition of external debt provided in paragraph 3(a) applies here.

13. Under the program, the Government will not accumulate external payments arrears, with the exception of arrears arising from debt under renegotiation or being rescheduled. The performance criterion on the nonaccumulation of external payments arrears will be applied on a continuous basis throughout the program period.

C. Ceiling on Nonconcessional External Debt with a Maturity of One Year or More Newly Contracted or Guaranteed by the Government and/or Public Enterprises

14. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00)), but also to commitments contracted or guaranteed for which no value has yet been received.

15. The concept of Government for the purposes of this performance criterion includes Government as defined in paragraph 2, administrative public institutions (EPAs), scientific and/or technical public institutions, professional public institutions, industrial and/or commercial public institutions (EPICs), and local governments.

16. Starting on the date of program approval by the Executive Board of the IMF, a ceiling of zero is set for nonconcessional borrowing. This performance criterion is monitored on a continuous basis.

17. The Government undertakes not to contract or guarantee external debt with a maturity of one year or more and a grant element of less than 35 percent (calculated using the reference interest rates corresponding to the borrowing currencies provided by the IMF). This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing, adopted by the Executive Board on August 24, 2000, but also to commitments contracted or guaranteed for which no value has yet been received. However, the criterion does not apply to (i) financing granted by the IMF, (ii) debt rescheduling transactions of debt existing at the time of the approval of the PRGF arrangement, and (iii) CFA debt contracted or guaranteed by the Government with West African Economic and Monetary Union (WAEMU) residents (including CFA debt initially contracted or guaranteed by the Government with WAEMU residents and subsequently acquired by nonresidents).

D. Ceiling on Short-Term External Debt Newly Contracted or Guaranteed by the Government and/or Public Enterprises

18. The definition in paragraph 2 and 3 of this TMU applies to this performance criterion. Short-term external debt is debt with a contractual term of less than one year. Import- related credit, CMDT foreign borrowing secured by the proceeds of cotton exports, and debt-relief operations are excluded from this performance criterion. Treasury bills issued in CFA francs on the WAEMU regional market are also excluded. In the context of the program, the Government and public enterprises will not contract, or guarantee, short-term external debt. This performance criterion is monitored on a continuous basis.

E. Floor on Cumulative Net Tax Revenues

19. Government tax revenues are defined as those that figure in the Table on Government financial operations (TOFE), and include all tax revenues accruing to the ordinary budget. Net tax revenues are gross tax revenues less tax refunds, notably on VAT; however, refunds from prior fiscal years settled under a formal agreement are excluded from this definition. The Government shall report cumulative tax revenues from the start of each year to IMF staff each month in the context of the TOFE. Performance criteria and quantitative performance indicators for cumulative net tax revenues are set in Table 1 attached to the Letter of Intent.

F. Floor on the Basic Fiscal Balance, Excluding HIPC Initiative-Related Expenditure

20. The basic fiscal balance is defined as the difference between total revenues, excluding grants and privatization receipts, and total expenditure plus net lending, excluding capital expenditure financed by foreign donors and lenders and HIPC Initiative-related expenditures. The floors for the performance indicators for the basic fiscal balance, excluding HIPC Initiative-related expenditure, are set in Table 1 attached to the Letter of Intent.

III. Structural Measures

21. Information relating to the introduction of the measures constituting structural benchmarks and performance criteria will be sent to Fund staff within two weeks of the date of their scheduled implementation.

IV. Additional Information for Program Monitoring

22. The Government will provide IMF staff with information as set out in the following summary table in order to assist in the monitoring of the program.

SUMMARY OF DATA TO BE REPORTED
Data TypeTablesFrequencyTime Frame
Real sectorNational accountsAnnualEnd of year + 9 months
Revisions of the national accountsVariable8 weeks following the revision
Disaggregated consumer price indexesMonthlyEnd of month + 2 weeks
Government financesNet Government position (including the list of accounts of other public entities with the banking system) and breakdown of nonbank financingMonthlyEnd of month + 3 weeks (provisional); end of month + 6 weeks (final)
Treasury general ledgerMonthlyEnd of month + 4 weeks
TOFE of the central Government and consolidated TOFEMonthlyEnd of month + 3 weeks (provisional); end of month + 6 weeks (final)
Budget execution through the expenditure chain as recorded in the automated systemMonthlyEnd of month + 2 weeks
Breakdown of fiscal revenue and expenditure in the context of the TOFEMonthlyEnd of month + 6 weeks (TOFE)
Separate report on outlays financed with HIPC resourcesMonthlyEnd of month + 6 weeks
Execution of capital budgetQuarterlyEnd of quarter + 8 weeks
Tax revenues in the context of the TOFEMonthlyEnd of month + 6 weeks
Wage bill in the context of the TOFEMonthlyEnd of month + 6 weeks
Basic fiscal balance in the context of the TOFEMonthlyEnd of month + 6 weeks
Regulatory order setting prices of petroleum products, tax revenues from petroleum products, and subsidies paidMonthlyEnd of month
Imports of petroleum products by type and point of entryMonthlyEnd of month + 2 weeks
Customs exemptionsMonthlyEnd of month + 4 weeks
Treasury operations of the CMDTMonthlyEnd of month + 4 weeks
Monetary and financial dataSummary accounts of the BCEAO, summary accounts of banks, and accounts of the banking systemMonthlyEnd of month + 4 weeks (provisional); end of month + 8 weeks (final)
Foreign assets and liabilities and other items net of the BCEAO and the commercial banks.MonthlyEnd of month + 8 weeks
Lending and deposit interest rates, BCEAO intervention rates, and BCEAO reserve requirementsMonthlyEnd of month + 4 weeks
Bank prudential ratiosMonthlyEnd of month + 6 weeks
Balance of paymentsBalance of paymentsAnnualEnd of year + 12 months
Revisions of balance of paymentsVariable8 weeks following each revision
External debtBreakdown of all new external borrowing termsMonthlyEnd of month + 4 weeks
Debt service, indicating amortization, interest payments, and relief obtained under the HIPC InitiativeMonthlyEnd of month + 4 weeks
PRSPShare of poverty-reducing expenditureQuarterlyEnd of quarter + 4 weeks
Share of primary education in total education outlaysQuarterlyEnd of quarter + 4 weeks
Gross enrollment ratio in primary education, by genderAnnualBeginning of the next academic year +1 month (final)
Percentage of the population having access to health care facilities within a radius of 15 kilometersAnnualEnd of year + 2 months
Rate of assisted birthsAnnualEnd of year + 2 months
Data on immunization rate DTCP3 of child below 1 yearAnnualEnd of year + 2 months

The bond issue was programmed in the end-December 2008 benchmark for domestic financing. Recording of the bonds effective in January thus led to an overrun of the March limit.

Although economically equivalent, regional financing through bank loans—rather than through T-bills or bonds—is not exempted under the Technical Memorandum of Understanding. This will be changed going forward (¶ 18).

Weaknesses in treasury management and a backloading of 2008 spending linked to the supplementary budget law helped raise the payment float at treasury from 1½ percent of GDP at the end of 2007 to about 2½ percent a year later. In addition, there was an amount equivalent to 1¼ percent of GDP in deposits at the treasury that can be withdrawn at any time and a stock of unpaid VAT credits to the mining sector estimated at 1½ percent of GDP.

The elimination of domestic arrears related to VAT credits was originally planned for 2008.

The macroframework for 2009 does not take into account the privatization revenue of SOTELMA. Should the operation be completed, the authorities will consult the Fund regarding the use of these receipts.

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