We appreciate the constructive policy dialogue that the Fund continues to maintain with our Malian authorities, particularly in the context of the program supported by the Extended Credit Facility (ECF).
Economic developments in Mali were broadly positive in 2009. Amid a difficult external environment, real GDP is estimated to have grown at a rate of 4.3 percent, largely driven by the primary sector. After peaking in the previous year, average consumer price inflation has continued to follow a downward trend and was contained below 3 percent. The resilience of the economy to external shocks improved significantly as a result of the implementation by the authorities of appropriate structural reforms. As part of these reforms those aimed at enhancing the business environment were key in attracting foreign direct investment, including the purchase by a foreign investor of shares in the telecommunications company, SOTELMA. Coupled with sound macroeconomic policies, the authorities’ reform efforts which also supported effectively the cotton sector contributed to the significant improvement in the country’s external position.
Laying the foundations of this strong economic performance was an almost flawless program implementation during the period covered by the third program review. Program performance on the quantitative front has been satisfactory, notably with all quantitative targets being met at end-June 2009 and, based on preliminary data, at end-September 2009. In particular, the authorities took the necessary steps to meet all quantitative performance criteria, notably those related to net domestic financing, net tax revenues, and external borrowing and payment arrears. Moreover, their continuous efforts to contain public expenditures and strengthen revenue mobilization led to a significant improvement in the basic fiscal balance at the end of the second and third quarter of 2009. Consequently, the authorities were able to fulfill their stated commitment to substantially reduce the level of domestic payment float in line with program commitments.
On the structural front, the authorities secured progress, meeting all structural benchmarks set forth for this third review. More specifically, the authorities took steps to strengthen revenue mobilization and public financial management, notably by developing a cash-flow plan consistent with budget nomenclature and by establishing a tax center for medium-sized enterprises. Moreover, the authorities’ efforts to improve governance of the cotton sector and better target subsidies granted to the agricultural sector while containing fiscal risks.
Policy and Reform Agenda for 2010
5. The Letter of Intent annexed to the staff report has provided the authorities with an opportunity to reiterate their strong commitment to implement prudent macroeconomic policies and to continue making headway in the implementation of their reform program.
Fiscal Policy and Reform
On the fiscal front, the authorities’ agenda will continue to focus on strengthening public financial management and tax administration. In this respect, sustained improvement in public financial management will rank high on the authorities’ priority reform program, building on the existing action plan for improving and modernizing public financial management (PAGAM). The authorities will also continue to work toward improving treasury management and better aligning the reporting of public finance statistics to best practices.
Previous efforts to strengthen tax administration have notably contributed to the strong revenue performance registered in 2009. Going forward, revenue mobilization is expected to be boosted notably by recent actions taken by the authorities, including the establishment of the new tax center for medium-sized enterprises.
On the expenditure side, it is the authorities’ firm intention to ensure a transparent and efficient use of the proceeds from the sale of SOTELMA, and close monitoring of their use will be ensured by an interministerial committee placed under the authority of the Prime Minister. Part of these resources is expected to finance a number of pro-growth investment projects, consistent with the authorities’ Economic and Social Development Plan. In this connection, capital expenditures are projected to claim a larger share of GDP this year although total expenditures in percent of GDP will remain virtually unchanged. This is reflective of the authorities’ determination to continue to exert a strict control over current expenditures and in this endeavor the planned introduction of a new expenditure management system is opportune.
Monetary Policy and Financial Sector Reform
In the conduct of monetary policy the regional central bank, BCEAO, will continue to adhere to a prudent stance. This will continue to support the projected low rate of inflation in 2010 which is line with the related convergence criterion set at the regional level.
In the financial sector, the authorities are proceeding with their work aimed at strengthening the resilience of the banking system and stimulating private sector involvement, notably through the restructuring of the housing bank, BHM. At the same time, the BCEAO will stand ready to take necessary actions to preserve the health of the banking sector while ascertaining that banks avail themselves with adequate liquidity.
Other Structural Reforms
Other key aspects of the authorities’ ongoing reform agenda include improving the management and monitoring of domestic debt and enhancing fiscal transparency. In order to materialize these objectives, efforts were initiated to establish a monitoring system for the budgetary float and a national public debt committee was established last September and tasked with coordinating the government’s borrowing and macroeconomic policies. At the same time, steps were taken to improve public finance statistics and tackle the anticipated depletion of known gold reserves, through notably a thorough account of the government’s net position and a study of the macroeconomic impact of the gold sector.
The authorities will proceed with the reform of state-owned enterprises, namely the cotton-ginning company, CMDT, the housing bank, BHM, and the electricity and water company, EDM. In this regard, we welcome the focus of the ECF-supported program on providing a framework for key strategic decisions to be made in relation with these companies, notably with a view to limiting the fiscal risks arising from these companies.
Great strides have been made by the Malian authorities in advancing their reform agenda set in the context of Fund-supported programs notwithstanding the slow implementation in some areas that has occasionally arisen from unforeseen circumstances. This performance reflects the authorities’ strong attachment to sound program implementation. But it also warrants continued support from the Fund, particularly in the face of the challenging prospects of Mali’s economy.
In light of Mali’s strong program performance, we call on Directors to support the completion of the third review of the ECF and to consider favorably the authorities’ request for modification of the end-December 2009 performance criteria related to domestic financing of the budget.