Mali
Recent Economic Developments
Author: International Monetary Fund
Publication Date:
15 Mar 1994
ISBN:
9781451826180
Language:
English
Keywords:
ISCR; CR; CFA franc; discount rate; money market; Malian authorities; debt service; consumer goods
Download PDF (3.5 MB)

This paper reviews economic developments in Mali during 1990–94. In the tertiary sector, trade continued to be the leading source of value added; its share in GDP increased continuously, from 17 percent in 1989 to 18.5 percent in 1993. This was compensated by a marked decline of the share of public administration, reflecting the containment of the wage bill and the streamlining of the civil service. The consumption share in GDP averaged a little less than 95 percent during 1989–93.

Abstract

This paper reviews economic developments in Mali during 1990–94. In the tertiary sector, trade continued to be the leading source of value added; its share in GDP increased continuously, from 17 percent in 1989 to 18.5 percent in 1993. This was compensated by a marked decline of the share of public administration, reflecting the containment of the wage bill and the streamlining of the civil service. The consumption share in GDP averaged a little less than 95 percent during 1989–93.

MALI - Basic Data 1/

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Data may not add up because of rounding.

Starting in 1991, six special funds and annexed budgets have been integrated into the central government budget.

Excluding SDR allocations and medium- and long-term liabilities.

MALI- Basic Data 1/ (concluded)

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Data may not add up because of rounding.

In percent of exports of goods and nonfactor services; after debt cancellation; before debt relief; excluding debt service due to the People’s Republic of China and the former U.S.S.R.

Mali: Selected Social and Demographic Indicators 1/

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Sources: World Bank, Social Indicators of Development, 1994; and staff estimates.

1987-92 average, unless otherwise indicated.

I. Introduction 1/

Mali is a vast landlocked country in the western Sahel, covering an area of 1.24 million square kilometers. The northern half of the country forms part of the Sahara Desert and, at present, contributes little to the gross domestic product (GDP). The southern half, irrigated by the Niger and the Senegal rivers, supports a variety of cash and subsistence crops. The country’s mineral resource base is more important than previously estimated, and important gold deposits are beginning to be exploited. Mali’s infrastructure, however, is sparse. The vast majority of Mali’s inhabitants, estimated at 8.6 million at end-1993, live in rural areas and depend on food crops and livestock for their livelihood. Agricultural production suffers from recurrent droughts, poor and fragile soils, the encroachment of the desert, and inadequate management of natural resources. The landlocked position of the country, its distance from foreign markets, the vulnerability of the economy to the weather, and a loss of competitiveness have hindered economic growth. A persistently high population growth rate of 3.5 percent per annum has absorbed most of the real economic growth during the past two decades. Mali’s capital base remains underdeveloped and inefficient, owing in part to insufficient investment and poor maintenance. In 1993, Mali ranked among the poorest countries of the world in terms of basic development indicators such as per capita income (US$306), life expectancy (47.9 years), and literacy rate (32 percent).

Despite the obstacles facing the Malian economy, the 50 percent devaluation of the CFA franc–the currency for the West African Monetary Union to which Mali belongs–that occurred on January 12, 1994, together with adequate macroeconomic and structural policies, is providing a window of opportunity for improving the country’s economic conditions. The attendant gains in competitiveness, together with fresh inflows of external assistance, are helping Mali to regain the ground that was lost during the last half of the 1980s and the early 1990s, as is described in the remainder of this report. Also, to the extent possible, the first effects of the devaluation are assessed.

II. Income and Production

1. Gross domestic product and expenditure, 1989-93

National income accounts data indicate that economic growth during the last five years was extremely unstable, with rates of real GDP growth ranging from 11.8 percent in 1989 to minus 2.5 percent in 1991 (Table 1). The primary reason for these large swings is the economy’s strong dependence on food and export crops, which are heavily influenced by yearly variations in the weather. On average, real GDP grew by 3.2 percent per annum during the period 1989-93, a rate lower than that of population growth. There are several reasons for these developments: unfavorable agroclimatic conditions, a weak external competitive position, and civil disturbances accompanying Mali’s transition to democracy and a free market system.

Table 1.

Mali: Gross Domestic Product at Constant 1987 Prices, 1989-93 1/

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

Data may not add up because of rounding.

Includes cotton, groundnuts, tobacco, fruits, vegetables, and other.

The composition of nominal GDP remained roughly constant over the last few years (Appendix I, Table I). The primary sector accounts for some 46 percent of Mali’s GDP, while the secondary sector constitutes about 16 percent and the tertiary sector 38 percent. In years of negative overall growth, the primary sector’s share temporarily dropped. During the past five years the secondary sector gained more importance, owing to increasing output in the mining sector. In the tertiary sector, trade continued to be the leading source of value added; its share in GDP increased continuously, from 17 percent in 1989 to 18.5 percent in 1993. This was compensated by a marked decline of the share of public administration, reflecting the containment of the wage bill and the streamlining of the civil service.

As can be seen in Table 2, the consumption share in GDP averaged a little less than 95 percent during 1989-93, after having been well beyond 100 percent in the aftermath of the droughts of the mid-1980s. The share of investment rose to about 22 percent. Investment was increasingly financed by domestic savings, particularly from the private sector. This reflects an improvement in domestic resource mobilization, brought about by the adjustment efforts initiated during the late 1980s. From a peak in 1991, the importance of the public sector had diminished by 1993, in terms of the share in GDP of both public savings and public consumption. In spite of the increased share of investment financed by domestic saving, dependence on foreign financing remained high and the resource gap failed to narrow.

Table 2.

Mali: Origin and Use of Resources, 1989-93 1/

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

Data may not add up because of rounding.

2. The agropastoral sector

Agriculture is by far the most important sector in the Malian economy; it accounts for almost half of real GDP and employs about two thirds of the population. Agricultural land encompasses only 26.3 percent of the total area. Almost all value added in this sector is created in the south of the country, which is favored by the Niger and Senegal rivers, higher rainfall (over 500 millimeters per annum), and better infrastructure. Since the devastating draughts in the mid-1980s, economic activity, especially in livestock raising, has tended to shift away from the northern regions. In recent years, a deterioration of the security situation has enforced this trend. 1/

a. Agroclimatic conditions

The agricultural sector is highly dependent on the weather, in particular the amount, timing, and distribution of annual rainfall. The cultivation of cereals is primarily rainfed; irrigation is available only for rice cultivation. Yearly rainfall is irregular and varies from region to region (Appendix I, Table II). In recent years, the crop season 1989/90 was hit hardest by the recurrent droughts, especially in the millet, sorghum, and rice cultivation areas, where the rainfall level was near 20-year record lows. That season’s output, however, was only slightly affected (Appendix I, Table III). The poor weather conditions continued in 1990/91, leading to a reduction in the production of all major food crops. Since then agroclimatic conditions have improved. The crop season for 1992/93 benefited from satisfactory rainfall. Based on preliminary data, the 1993/94 crop season is also better than average.

b. Food crops

Food crops account for most of the value added of the primary sector. While the output of dry cereals (millet, sorghum, maize) remained on average practically constant over the past five years, rice production increased considerably (Chart 1). In 1992/93, output fell short of prior years’ performance for the whole range of cereals, but production seems to have recovered somewhat in the 1993/94 crop season. On the whole, the outputs of food crops during the last five years remained below their potential, but this cannot fully be explained by poor agroclimatic conditions.

The performance of the food crops sector occurred against a background of reform measures and considerable efforts made to establish appropriate incentive systems and expand the role of market mechanisms in Mali’s agricultural sector. Since the 1988/89 crop season, all producer prices have been liberalized. Most state-owned rural production companies and marketing agencies have been privatized, notably in the rice sector. The main irrigation compound, the Office du Niger (ON), lost its rice marketing monopoly in the late 1980s and stopped buying paddy from producers in 1994. The newly-restructured Office du Niger is considerably reduced in size and scope, concentrating mainly on water management. Similarly, since 1990, the role of the Office des Produits Agricoles du Mali (OPAM) has been confined to the maintenance of the food security stock, the management of food aid, and the supply of food in areas experiencing shortages. Restructuring and privatization of various rural development organizations is also under way.

There is, however, strong evidence that a loss of competitiveness in the 1980s hindered the cereal sector from fully reaping the benefits of these structural reforms. The overvaluation of the CFA franc made cereal imports relatively cheap. This is particularly true for rice, where imports from Southeast Asia covered any difference between domestic demand and supply. As a consequence, producer prices remained low. The authorities tried to maintain the competitiveness of domestic cereal production through ad hoc protective measures, including a protective tariff on rice and sugar.

CHART 1
CHART 1

MALI: AGRICULTURAL PRODUCTION INDICES, 1985/86-1992/93 1/

(1985/86 = 100)

Citation: IMF Staff Country Reports 1994, 011; 10.5089/9781451826180.002.A001

Source: Data provided by the Malian authorities.1/ Crop year: April-March.2/ Millet, sorghum, and maize.

Preliminary data indicate that the January 1994 devaluation has induced a favorable response from producers. In the first few months of 1994, import substitution led to increased demand for domestic cereals, and Malian rice became sufficiently competitive that it could be exported to neighboring countries. Owing to ample domestic supply, cereal prices did not pick up significantly in the first quarter of 1994 (Appendix I, Table IV). The authorities consider that rice will benefit most from the improvement in competitiveness following the January 1994 exchange rate adjustment. Rice cultivation is well organized, and the restructured Office du Niger is now offering rice farmers an opportunity to produce entirely on their own account; also, there have been great improvements in productivity through better resource management (Appendix I, Table V).

c. Cash crops

Mali’s traditional export crops are cotton and groundnuts. Cotton is by far Mali’s most important export commodity. Raw cotton is grown by independent farmers, mainly in the area around the Niger River and in the southwestern part of the country. Seed cotton is then sold to the Compagnie Malienne pour le Développement des Textiles (CMDT), which carries out its processing and marketing. The CMDT’s monopsony power vis-à-vis producers is controlled by the Government, which is also the majority shareholder. Producers receive a floor price for their seed cotton determined each year in consultation between the CMDT, the producers, and the Government, and taking into account export prices. The producers also receive a share of the CMDT’s profits. In the late 1980s and early 1990s efforts were made to increase productivity in the cotton sector. A restructuring program, supported by the World Batik and other donors, was launched in November 1989. It introduced measures to improve competitiveness by increasing ginning yields, growing new varieties, and containing cost. Cotton output increased markedly, from 229,000 metric tons in 1988/89 to 305,000 tons in 1992/93. However, in spite of its cost-cutting measures, the CMDT could not match the sharp decline in world cotton prices since 1991 (chart 2). By 1992/93 the CMDT’s cumulative deficit reached CFAF 11.9 billion. The only resources available to cover these losses came from bilateral financial assistance, as well as from the cotton stabilization fund built up in earlier years; by late 1993, however, the latter had been depleted. The financial difficulties resulted in a slowdown of investment, as no new processing factories were built during the period from 1990 to 1993, and repairs of existing facilities were delayed. Being a price taker in the world market, the cotton sector responded by reducing output. For 1993/94 the CMDT corrected its output objective downward to 260,000 tons of raw cotton, some 15 percent below the previous crop year’s result. Given the fixed producer price, cotton farmers’ incomes would have fallen accordingly.

CHART 2
CHART 2

MALI: COTTON EXPORT PRICE INDICES, 1985-94

(US Dollars and CFA Francs per kilogram; 1985=100)

Citation: IMF Staff Country Reports 1994, 011; 10.5089/9781451826180.002.A001

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

The cotton sector is benefiting considerably from the devaluation of the CFA franc. The CMDT regained its financial viability, as cotton sale receipts doubled in CFA franc terms, while production costs increased by only about 30 percent. As a result, the CMDT recorded a gross surplus of CFAF 18.4 billion (before distribution to producers and stabilization fund) for the 1993/94 crop year, instead of an estimated pre-devaluation loss of CFAF 3.6 billion. The changed conditions in the cotton sector coincided with the signing of a new performance contract between the Government, producers, and the CMDT on June 30, 1994, covering the period from October 1994 to September 1998. The prior performance contract’s strategy of output expansion has been resumed, and the processing facilities are to be modernized so as to increase the ginning yield (that is, the marketable percentage of raw cotton). In addition, the CMDT intends to improve the quality of cotton through (i) a stronger producer price differentiation between first and second quality cotton; (ii) controlling seeds, fertilizers, and insecticides available to farmers; and (iii) enhanced training and information. The producer floor price has been augmented from CFAF 85 per kilo to CFAF 125 per kilo for high quality cotton as of the 1994/95 crop year, and the share of CMDT’s net profits distributed to cotton farmers has been increased from 33 percent to 35 percent. The stabilization fund is also being replenished.

In recent years, groundnuts, Mali’s second largest export crop, suffered from problems similar to those of the cotton sector. Farming is still rather extensive, although the public marketing agency, Office de Développement Industrial Mali Ouest (ODIMO), made some progress in improving its services for seeds, equipment, and fertilizers. Until 1991/92 production increased, although at a rather slow pace. In 1992/93 it dropped sharply, and almost the entire production is now consumed domestically. Output declined in part because cultivation was not profitable at the prevailing world market prices in CFA franc terms. Another element explaining the fall in output is the strong incentive to switch to cotton cultivation, which offers higher producer prices and, within the CMDT framework, is better organized. An undesirable consequence, however, has been a further development of monoculture, and from an environmental point of view, a deterioration in soil quality. Groundnut production is also expected to benefit from the devaluation.

Fruit and vegetable production has traditionally been designated for the domestic and–to a limited extent–the regional market. Fruits and vegetables from Mali, especially mangos, are of high quality; their cultivation, however, is still extensive and on a very small scale. Since the devaluation of the CFA franc, exploration of processing and marketing possibilities has been actively pursued as part of a broad-based export diversification strategy, which is receiving support from the donor community, including the World Bank.

d. Livestock 1/

In the early 1990s livestock herds recovered from the devastating droughts of the mid-1980s. The total stock of cattle, sheep, and goats has been growing at a fairly constant rate of about 2 percent per annum. Offtake rates are usually inversely related to cereal output. In bad years more animals are slaughtered than in good years, as auto-consumption increases (Appendix I, Table VI). Livestock farming in Mali remains very traditional, relying mainly on extensive grazing and natural pastures. In the past few years, many herds moved away from the north, where the expanding desert made pasture sparse. This led to the development of an agropastoral sector in the south, especially in the areas irrigated by the CMDT and the ON, where cotton and rice farmers are now keeping some livestock. This agropastoral sector is expanding and seems to be more open to modern methods of meat production. The diversification in the agricultural sector is supported by international aid organizations and donors.

Livestock has always been an important export commodity in Mali, ranking second after cotton. Traditionally, one of the most important importers of Malian meat is Côte d’lvoire. In the past few years, however, Côte d’lvoire switched to relatively cheaper meat from outside the region, mainly subsidized meat from the European Community. This process seems to have been reversed by the devaluation of the CFA franc, as indicated by the rapid increase of meat exports since January 1994. In the first half of 1994, formal exports of cattle alone amounted to about 120,000 animals, compared with 200,000 (formal and informal) in all of 1993. As livestock farmers were reluctant to increase the offtake ratio, meat supply on the domestic market fell. Consequently, meat prices, especially in Bamako, which had been remarkably stable immediately after the devaluation, started to increase. There are indications, however, that the agropastoral sector is reacting to this price hike by slaughtering more animals, especially goats and sheep.

Mali has recently spearheaded efforts to promote regional livestock trade. In April 1994 the Ministry of Rural Development organized a conference–the Segou Forum–in which government officials and donors, as well as livestock producers and traders from Burkina Faso, Côte d’lvoire, Ghana, Mali, and Senegal developed a common strategy to promote regional livestock trade in the aftermath of the devaluation. The envisaged measures include special tax breaks and credit lines to promote investment in transportation and processing facilities, easier access to export licenses, and a general disengagement of the Government from the livestock sector (for example, privatization of mandatory vaccination). In addition, a program to improve statistics is being supported by various donors.

3. Industry and manufacturing

Mali’s modest Industrial base (about 6 percent of GDP) is largely based on the processing of agro-Industrial products. Growth performance in this sector is therefore linked to growth in the primary sector, especially export crop and meat production. In 1990/91, when agricultural output decreased because of a bad harvest, the index of Industrial production declined by 14 percent (Appendix I, Table VII). The stagnation of overall Industrial activity during the past five years has been due to structural problems. Many enterprises suffered from poor management, comparatively high unit wages, and the overvaluation of the CFA franc. The textile industry is a prime example. By 1993, both major companies (COMATEX and ITEMA) had gone out of business because they were not able to keep up with foreign competition. In an effort to revitalize Industrial activity, a number of formerly state-owned companies were privatized. In the short run, however, liquidations and restructurings under the Public Enterprise Sector Adjustment Program (PESAP) induced a significant narrowing of the Industrial base, thus further exacerbating the slump in Industrial activity.

In spite of its reduced size, the Industrial sector appears well positioned to take advantage of the gain in competitiveness acquired through the devaluation. Textiles, machinery, and construction materials are among the sectors to benefit from import substitution and exports on a regional level. Nevertheless, preliminary information shows that the overall slump of Industrial activity continued in the first quarter of 1994. So far, the private sector’s wait-and-see attitude has prevented a rebound in activity. This is aggravated by an extremely prudent credit policy on the side of commercial banks. However, encouraging signs are already visible: in Bamako, in particular, a significant number of small-scale businesses are opening, including dairies, food processing plants, and soap manufacturers.

4. Mining

In the past several years, mining has become one of Mali’s most promising sectors. Compared with its potential, the mining sector is presently underdeveloped. This is particularly true for gold. Mali has known reserves of 305 tons of gold, according to a recent survey conducted by the Ministry of Mining with the help of international donors and investors. Until 1990, Industrial gold mining production rarely exceeded 1 ton a year. With the opening of the Syama site, which is operated by the Société des Mines d’Or de Syama (SOMISY), output increased to about 3 tons a year. SOMISY is a joint venture of the U.S.-Australian consortium BHP Minerals (65 percent of capital), the Malian Government (20 percent), and the World Bank (15 percent). Mali’s second Industrial mine–Kalana–was closed in 1991, owing to flooding and a lack of maintenance of the physical plant. The former owner, the Soci6te des Mines d’Or de Kalana (a joint venture between the Malian Government and the former U.S.S.R.) is in liquidation. The Malian authorities are actively looking for investors to resume production in Kalana, expand Syama, and exploit further sites. In September 1991, a revised Mining Code was adopted, limiting the Government’s equity interest in new operations to 20 percent, ensuring uniform treatment of tax exemption, and simplifying the procedures for obtaining prospecting and mine-operation licenses.

After the devaluation, prospects for increased use of Mali’s extensive mineral resources have brightened, with gold exploitation and mining becoming particularly attractive for foreign investors. The Syama mine will reach its second expansion phase in late 1994; this is expected to increase total output to about 4 tons in 1994 and 5 tons in later years. The most advanced new project is Sadiola. A joint venture consisting of a South African consortium (78 percent of capital), the Malian Government (18 percent), and the World Bank (4 percent) plans to start production in September 1997. The mine has a planned yearly capacity of 8 tons, and it is expected to be fully operational after 1998. A further site attracting foreign investors is Loulo, which is scheduled to start operation in 1998 with a yearly production of 3 tons. Small-scale gold production has a long tradition in Mali and is quite significant in terms of volume; estimates are in the range of 2-4 tons yearly, a large part of which is exported through informal channels. A study prepared by the mining industry, assessing known reserves of other mineral resources, shows that Mali has significant stocks of iron ore, bauxite, magnesium, limestone, phosphate, and marble; presently, only the latter two are being exploited.

III. Prices, Wages, and Employment

1. Prices

Since 1986, the Government had pursued a policy of liberalizing prices and marketing. With the elimination, on July 1, 1992, of the price controls on petroleum products, all prices became market-determined, with the exception of those for water, electricity, and telecommunications.

In 1988 a new monthly consumer price index (CPI) was introduced. 1/ The CPI for Bamako increased slightly in the late 1980s and early 1990s, and dropped in 1992 and 1993 (Chart 3 and Appendix I, Table VIII). These deflationary developments are due mainly to a cautious monetary policy, the overvaluation of the CFA franc, and two good cereal harvests.

CHART 3.
CHART 3.

MALI: BAMAKO CONSUMER PRICE INDEX JULY 1987-MAY 1994

(Period average 1980=100)

Citation: IMF Staff Country Reports 1994, 011; 10.5089/9781451826180.002.A001

Source: Data provided by the Malian authorities.

The development of consumer prices following the January 1994 devaluation can be roughly divided into an initial adjustment phase (from the announcement of the devaluation of the CFA franc on January 11 until about mid-March), and a consolidation phase thereafter. In the week immediately following the devaluation, there was an overreaction in the markets and prices of most commodities rose substantially, even those of domestically produced products. In response to this overreaction, the Government announced a general temporary price freeze on January 16, 1994; although it was based solely on moral persuasion, as there was no legal basis for effective enforcement, the price freeze was widely observed. The actual price level adjustment took place one week later, when the Government lifted the price freeze and announced the accompanying measures laid out in the Government’s adjustment program. 2/ The price index (based on December 1993 - 100) rapidly increased from about 103 index points in the last week of January to about 117 in the second week of February. After the level adjustment in the first two weeks of February, prices continued to climb, although at a slower pace; this, however, reflects the normal demand-pull effect during the Ramadan period (mid-February to mid-March). Compared with prior years, the 1994 Ramadan period’s price increase was rather moderate, amounting to less than 4 percent (9.9 percent in 1992, 6.6 percent in 1993, compared with previous months), as part of the demand-pull effect had already been included in the post-devaluation price adjustment in the first weeks of February. Moreover, a temporary customs exemption for sugar imports contributed to the moderate increase of the price index.

After the end of the Ramadan period, consumer prices essentially returned to their yearly pattern. For more than two months the index remained stable. By May 1994, the index rose by 23 percent compared to December 1993. The public sector wage increase of 10 percent, which became effective in April, had a negligible immediate effect on inflation. In early June prices resumed their seasonal climb, as food stocks from the last harvest started to run low. Two devaluation-related effects may have some what aggravated the seasonal price increase. First, stocks of import commodities purchased before the devaluation were used up, forcing many importers for the first time to buy at the new exchange rate. Second, rice, a key cereal, was becoming scarce, since parts of the domestic harvest had been sold to neighboring CFA franc zone countries soon after the devaluation.

Overall, the relatively moderate inflation following the devaluation are due to several factors: (i) the 1993/94 harvest for key cereals like rice, millet, and sorghum was quite good; (ii) consumers reacted to the initial surge in prices by making their choices more carefully, squeezing profit margins of importers; (iii) import substitution in favor of cheaper domestic products was quite strong; and (iv) the authorities have been following very prudent income and financial policies.

2. Wages

The Government sets salaries in the civil service and establishes minimum wages for unskilled agricultural workers (SMAG) and unskilled workers outside agriculture (SMIG). Labor pressures increased in early 1991, contributing to the events of March 22-26, 1991, and the installation of a transitional Government on April 5. During this period of political turmoil the SMIG and the SMAG were increased by more than 50 percent through payment of a solidarity allowance (CFAF 6,500 per month). This allowance was also granted to the lowest grades in public administration, representing a 25 percent wage raise (Appendix I, Table IX). An allowance of CFAF 2,000 per month was also granted to higher grades. After this increase, the wage structure in the public sector remained unchanged and no merit increases and no cost of living adjustments were granted. Information on wages in the nonpublic sector is not available; traditionally, nongovernment employees enjoy higher salaries but lower nonsalary benefits on average than public servants. In recent years the gap between public and private sector wages is estimated to have widened, owing to the above-mentioned freeze on public salaries.

On March 10, 1994 a wage contract was signed by the Government and the Malian trade union association–Union Nationale des Travailleurs Maliens (UNTM). As of April 1, 1994, public servants’ base salaries, as well as the SMIG and the SMAG, were increased by up to 10 percent in order to mitigate the social impact of the devaluation. In general, the private sector has followed the public sector wage increase. In real terms, however, most wages decreased substantially after the devaluation.

3. Employment

Information on Mali’s overall employment situation remains very limited. The Ministry of Employment, Public Administration and Labor is in charge of monitoring the employment situation; however, its activities are essentially confined to the public sector.

The total civil service (excluding military and justice) has diminished steadily during the last five years; in 1993 employment in the public sector of 36,055 was about 30 percent lower than in 1989 (see Appendix I, Table X). This is the result of a deliberate policy to streamline the civil service, which was based on a thorough review of redundant staff positions performed on the basis of so-called cadres organiques in the early 1990s. The cadres organiques had identified a surplus of about 20 percent of total staff (1,700 civil servants and 6,500 contractual employees). The Government took several measures to downsize public sector employment: (i) a cautious recruitment policy was pursued; (ii) a voluntary departure program was enacted to assist government employees to leave the civil service and establish themselves in the private sector; between 1991 and 1993, some 5,100 civil servants participated in the program; (iii) several public enterprises were privatized, in the context of the PESAP, with their staff being converted from public to private employees; and (iv) in 1990, the number of administrative units was reduced from 127 to 97 and the payroll was computerized.

To enhance the flexibility of the labor market, the Government abolished in 1991 the monopoly exercised by the national labor and employment agency, and authorized the creation of private employment offices. Moreover, in order to promote investment and job creation in the private sector, the Government adopted in 1992 a new Labor Code, aimed at providing greater flexibility in hiring and firing procedures, as well as a revised Commercial Code to further simplify the regulation of private firms.

IV. Development Panning

Mali’s development planning process has undergone important changes during the last five years. Until 1991, the then Ministry of Planning elaborated five-year development plans. Initial overall targets and priorities were set and financial ceilings of sectoral development expenditure were defined. The Ministry of Planning and the technical ministries then decided which projects were to be adopted in view of the availability of financing. This process, however, suffered from a lack of involvement of donors, poor coordination between the different partners, and weakness in the preparation of feasibility studies. As a result of these problems, implementation rates of yearly public investment programs were rather low (Table 3).

Table 3.

Mali: Implementation of the Public Investment Program, 1989-93 1/

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Source: Data provided by the Malian authorities.

Data may not add up because of rounding.

Beginning in 1988, the annual investment budget has been set within the framework of a three-year rolling public investment program, which is expected to provide more flexibility. Further changes in public investment programming, aimed at ameliorating the public investment planning process, were introduced in recent years. They include: the setting up of planning units within key ministries to improve the appraising and selecting of investment projects; the closer review of medium- and large-scale projects in cooperation with the World Bank; the quarterly reporting on the physical and financial implementation of the program; the shortening of the administrative circuit so that the sectoral ministries are directly responsible for reporting on projects; and simplified reporting forms.

The investment program for 1994-96 (Appendix I, Table XI) reflects the significant increase in the cost of imported goods and services resulting from the devaluation; a higher project implementation ratio, and increased domestic provisions for counterpart funds. As a result, total development expenditures is projected to more than double between the 1993 realization (CFAF 67.3 billion) and the 1994 investment budget (CFAF 136.4 billion). The new public investment program gives priority to rural development expenditures and to infrastructure, together comprising about 60 percent of the three-year program. Compared with previous years more resources are to be devoted to the secondary sector (especially mines, water, and energy).

V. Government Finance

1. Structure of the government sector

The government sector in Mali consists of the Central Government, a number of specialized institutions that carry out specific functions for the Central Government, and several regional and local authorities. The Central Government includes the Presidency, the National Assembly, the Economic and Social Council, the Supreme Court, the Office of the Prime Minister, and 15 ministries, which are covered by the national budget. There are 9 regional authorities, including the district of Bamako, 13 local authorities (municipalités), and 6 specialized institutions with their own budgets, the most important of which is the social security fund (Institut National de Prévoyance Sociale–INPS). 1/ The consolidated government operations comprise those recorded in the national budget, the regional budgets, and the special funds and annexed budgets of the 6 specialized institutions, as well as extrabudgetary operations. Since 1991, normal budget procedures have been extended to the spending of the armed forces. In addition, in order to improve monitoring and financial management, since 1989 the investment budget has been fully integrated into the budgetary process of the Central Government.

The Treasury executes all financial transactions of the government budget, and controls various special accounts that cover a wide range of operations, including cash accounts of local authorities. The special accounts cover both current and investment outlays, which are financed through earmarked revenue and budgetary transfers, as well as external assistance. The Treasury maintains deposits at the Central Bank of West African States (BCEAO) and also with commercial banks, in particular at the Banque de Développement du Mali (BDM-SA) and the Banque Nationale de Développement Agricole (BNDA). The extension of central bank credit to the Central Government is subject by statute to a ceiling of 20 percent of the tax revenue in the previous complete fiscal year.

2. Overall fiscal developments

Following an interruption of the adjustment process from mid-1986, the Government of Mali resumed its adjustment efforts in mid-1988. As a result, Mali’s fiscal position improved during 1989-90, and the overall fiscal deficit, on a commitment basis and excluding grants, fell from 10.5 percent of GDP in 1988 to 8.5 percent in 1990 (Table 4). This improvement reflected both increased efforts to mobilize revenue and the implementation of a tight expenditure policy. Total government revenue during this period increased by 35.6 percent to reach CFAF 116.1 billion in 1990. At the same time, the growth of total expenditure was limited to 17.9 percent. The wage bill was maintained at about its 1986 level, mainly reflecting a continued freeze on wages. Development expenditure rose in line with the expanding public investment program, while the externally financed expenditure on the public enterprise reform program, including the rehabilitation of the BDM, increased considerably. Domestic payments arrears were sharply reduced, all external payments arrears were eliminated by end-1989, and the Government continued to reduce its net indebtedness to the banking system. Mali also benefited from considerable disbursements of external budgetary assistance, and debt rescheduling.

Table 4.

Mali: Consolidated Government Operations, 1989-93 1/

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Source: Data provided by the Malian authorities.

Data may not add up because of rounding.

Starting in 1991, six special funds and annexed budgets have been integrated into the central government budget.

Budgetary grants include a contribution of CFAF 2.0 billion from the cereal market restructuring project (PRMC), and exclude a grant of CFAF 1.6 billion from STABEX.

Scheduled; after debt cancellation.

Starting in 1991, interest payments are shown under current budgetary expenditure because of the integration of the debt servicing agency (CAA) into the central government budget.

PESAP, Public Enterprise Sector Adjustment Program, financed by the world Bank and cofinanciers; BDM, Banque de Développement du Mali.

Expenditure by the Ministry of Rational Defense.

The improvement in the overall fiscal position in 1989-90 was not, however, sustained in 1991. Following the events of early 1991, the fiscal deficit rose markedly to 12.3 percent of GDP. The destruction of administrative facilities and enterprises and a decline in economic activity led to sizable revenue losses, while total expenditure rose significantly. In order to limit the revenue losses caused by the destruction during the events of March 1991, the Government made an effort to rebuild the tax and customs administrations and to improve revenue mobilization. As a result, the decline in total government revenue was limited to 5.6 percent. In spite of cutbacks in low-priority spending, total expenditure rose by 10.7 percent, reflecting an increase in the wage bill and in scholarships, the high costs of the voluntary departure and public enterprise reform programs, and spending devoted to reconstruction. The wage bill rose by 11 percent, as the granting of a bonus and three of the five automatic promotions that had been frozen since 1986 was only partially offset by a reduction of 2,818 civil servants and military personnel under the voluntary departure program. External payments arrears of CFAF 1.1 billion were accumulated. At the same time, foreign budgetary assistance enabled the Government to abolish the practice of paying salaries one month late and to further reduce its net domestic indebtedness.

As soon as it took office in June 1992, the new democratically elected Government decided to regain the adjustment momentum. The measures introduced helped to reduce the fiscal deficit to 11.2 percent of GDP in 1992 and to 9.6 percent in 1993, but there were some policy slippages after the promising start of the adjustment program. In 1992, there was a further drop in total government revenue by 8.1 percent as a result of the tax relief measures taken in the beginning of the year and the mounting difficulties encountered in the enforcement of tax recovery, particularly in the last quarter. However, total expenditure fell by 4.6 percent, mainly as a result of a reduction in the wage bill, delays in the implementation of some development projects, and declining expenditures for the voluntary departure and public enterprise reform programs, as well as for reconstruction. The decrease in the wage bill resulted from the impact of 1,835 additional voluntary departures and the efforts undertaken to verify the number of government employees and to rectify the salary files. On the other hand, spending on scholarships increased, primarily because the envisaged measures to reduce them could not be implemented at the beginning of the new school year in October 1992, and the Government incurred significant extrabudgetary outlays, notably related to public works and reconstruction. The Government reduced its domestic payments arrears, but accumulated external payments arrears, as the expected external budgetary assistance was not received in full.

In 1993, the fiscal position improved further, as total government revenue increased somewhat and total expenditure continued to decline. In spite of the various revenue-enhancing measures taken by the Government throughout the year, total revenue grew only by 4 percent, indicating continuing problems with regard to tax recovery. Total spending fell by 3.3 percent, mainly on account of the phasing out of the voluntary departure and public enterprise reform programs, and of the completion of the reconstruction efforts. The wage bill was also further reduced to CFAF 40.9 billion, partly as a result of 450 voluntary departures. At the same time, spending on scholarships proved hard to contain, and further extrabudgetary outlays were incurred, contributing to the accumulation of new domestic payments arrears. These developments, and a decline in external budgetary assistance, led to an accumulation of external payments arrears, as well as a significant deterioration in the Government’s net position vis-à-vis the banking system instead of the improvement of previous years.

In early 1994, the authorities decided to strengthen their adjustment efforts. Soon after the devaluation of the CFA franc in January 1994, the authorities implemented a package of accompanying fiscal measures aimed at ensuring that the positive effects of the devaluation will not be eroded by inflationary pressures. The Government adopted specific measures aimed at increasing revenues and limiting spending in order to contain the overall fiscal deficit to the equivalent of 15 percent of GDP in 1994, in spite of the impact of the devaluation on expenditures, especially external debt services. Fiscal developments during the first half of the year have been encouraging. Government revenue exceeded the projected amount, despite a shortfall in customs revenue, and spending remained strictly controlled.

3. Trends in revenue 1/

During 1989-93, total government revenue increased at an average annual rate of 4.1 percent. There was a strong growth in revenue in 1989-90, but a considerable decline during 1991-92, followed by a modest pickup in 1993 (Table 5; Appendix I, Table XII). The ratio of total government revenue to GDP during this period averaged 15.6 percent, with a peak of 17.2 percent in 1990 and a trough of 13.7 percent in 1992. Since 1991, the level of tax revenue has increased considerably, reflecting the integration of six specialized institutions into the national budget.

Table 5.

Mali: Government Revenue Performance, 1989-93 1/

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Source: Data provided by the Malian authorities.

Data may not add up because of rounding.

Beginning in 1991, tax revenues included in this category, which were previously earmarked for special funds, have been consolidated in the budget.

Despite the various discretionary measures introduced between 1989 and 1993 to improve revenue performance, the tax and customs administrations have remained rather weak and the difficulties in the enforcement of tax recovery have persisted. In 1989, a comprehensive tax reform was introduced, including the assessment of non-oil import duties on actual values instead of administrative values (valeurs mercuriales); the contracting of the Sociéeté Générale de Surveillance (SGS) to verify the value of imported goods; the reduction of ad hoc exemptions; the opening of eight new collection centers in Bamako; the subjection of the removal of goods from customs to the prior securing of adequate payments means; and the improvement in monitoring tax obligations and payments. In early 1991, additional reforms to enhance the elasticity of the tax system were implemented, notably: the replacement of the previous sales tax by a value-added tax (VAT) and a special tax on services (TPS), which is similar to the VAT; the rationalization of customs duties; and the replacement of most of the domestic tax on petroleum products by a customs levy. However, in the beginning of 1992, measures were taken to reduce certain customs duties and VAT rates, and to extend the scope of exemptions. From the last quarter of 1992, tax collection difficulties increased, as the commercial sector resisted paying the VAT on retail sales, and the poll tax on persons had to be abolished. Moreover, during 1993, there was a significant delay in the intended reorganization and strengthening of the tax and customs administrations, and early in the year certain customs tariffs were lowered and harmonized. On the other hand, to increase revenue, the Government imposed a 5 percent withholding tax on imports and government contracts, raised the motor vehicle tax, and strengthened the VAT collection procedures. In the last quarter of 1993, additional measures were taken to enhance collection of the tax on hydrocarbons, raise a number of customs tariffs, intensify the collection of tax arrears, and step up the fight against tax evasion.

During 1989-93, the composition of tax revenue became even more heavily weighted toward indirect taxes, in particular taxes on international trade. Thus, by 1993, taxes on international trade represented some 57 percent of tax revenue, and just over 50 percent of budgetary revenue, with taxes on net income and profits, and taxes on domestic goods and services each representing about 14 percent of tax revenue. Since 1991, revenue of the special funds and annexed budgets has decreased, reflecting the integration of six special institutions into the national budget, and the transformation in 1992 of the Office de Stabilisation et de Régulation des Prix (OSRP) into the Office National des Produits Pétroliers (ONPP), which is responsible for the regulatory framework of the petroleum subsector and is incorporated in the national budget (Appendix I, Table XIV).

Following the devaluation of the CFA franc, the authorities have put in place measures to broaden the tax base, strengthen collections, and reduce tax evasion. At the same time, to limit the increases in domestic costs and prices resulting from the devaluation, the authorities decided to reduce certain customs duties and tax rates, effective January 30, 1994. The measures included in particular: a reduction of the maximum cumulative import tariff rate to 36 percent and setting the minimum cumulative rate at 6 percent; the suspension of the variable tax on imports (TCI) and the declining protection tax (TDP); the reduction of the corporate income tax from 45 percent to 35 percent, the tax on individual entrepreneurs from 25 percent to 15 percent, and the tax on craftsmen from 15 percent to 10 percent; and the reduction of the normal VAT rate from 17 percent to 15 percent.

4. Trends in expenditure

During 1989-93, total government expenditure, including foreignfinanced investment, increased at an average annual rate of 3.8 percent; as a ratio to GDP, it fell from 26.7 percent in 1989, with an interruption in 1991, to 23.5 percent in 1993 (Appendix I, Table XIII). Budgetary expenditure–which includes foreign-financed investment and expenditures on the voluntary departure and public enterprise reform programs, but excludes the spending of the special funds and annexed budgets, as well as extrabudgetary outlays–increased significantly in 1991, largely as a result of the integration of the six specialized institutions in the national budget. During the period 1989-93 as a whole, however, budgetary expenditure grew at an average annual rate of not more than 6.2 percent, while its ratio to GDP declined slightly from 22.1 percent in 1989 to 21.4 percent in 1993. The surplus of the special funds and annexed budgets declined over the period, reflecting the above-mentioned integration, the transformation of the price stabilization fund (OSRP), and, since 1991, the dwindling surplus of the social security fund (INPS).

Current expenditure increased at an average annual rate of 7.6 percent during 1989-93; its share in total budgetary expenditure rose from about 47 percent in 1989 to almost 55 percent in 1993, reflecting the diminishing outlays on the voluntary departure and public enterprise reform programs. The share of outlays on personnel was reduced from 56.9 percent of current expenditure in 1989 to 46.4 percent in 1993 (Appendix I, Table XV). The decline in the share of the wage bill reflected the salary freeze in 1989-90 and 1992-93, the impact of the voluntary departure program, as well as the curtailment of gross recruitment. In February 1993, the Government adopted a new salary grid to reflect wages effectively paid, and decided to replace the existing system of automatic promotions with one based essentially on merit. Expenditure on supplies, which grew at an annual average rate of 6.9 percent in 1989-93, increased its share in current outlays from 8.6 percent in 1989 to 10 percent in 1993. The share of education in total government expenditure rose from 11 percent in 1989 to some 13 percent in 1993. However, more than 20 percent of spending on education was on scholarships. During this period, the share of expenditure for the health sector remained around 5 percent.

Development expenditure continued to be mainly externally financed, through highly concessional loans and grants. As a share of budgetary expenditure it remained virtually unchanged, at around 42 percent. At the same time, the share of foreign-financed capital outlays in GDP fell from 8.7 percent in 1989 to 7.8 percent in 1993, while the share of domestically financed development expenditure doubled, to 1.2 percent of GDP. In line with the efforts of donors to gradually reduce Mali’s external debt burden, the proportion of grants in the external development financing increased from 42.6 percent in 1989 to some 51 percent in 1991-93.

Following the devaluation of the CFA franc in early January 1994, the Government has implemented a tight expenditure policy, including a restrained wage policy and a strict control of nonpriority expenditure. This policy aims at limiting total government spending to 28.2 percent of GDP, in spite of the effect of the devaluation on expenditures, especially external debt servicing. An agreement reached between the Government and the labor unions provided for a moderate 10 percent increase in salaries, as of April 1. Increased provisions have been made in the 1994 budget for essential social services, in particular basic education and health services. To mitigate the short-term negative impact of the devaluation on the most disadvantaged social groups, the Government has introduced accompanying social measures with the objective of limiting price increases for essential goods, and improving the availability of basic social services. The immediate measures include the intensification of immunization programs and the strengthening of primary health care to fight infant mortality. A special allocation of CFAF 13 billion for social safety net measures was included in the 1994 budget.

VI. The Public Enterprise Sector

For decades Malian economic policies were characterized by state intervention in virtually all spheres of economic activity. This was particularly evident in the public enterprise sector, which, in the mid-1980s, included 57 enterprises, most of which were dominant in the sectors in which they were operating. Management of these companies was poor, resulting in severe financial difficulties and misallocation of resources. In 1988 the Government, with the support of the World Bank, launched a comprehensive reform program, the Public Enterprise Sector Adjustment Program (PESAP). It sought to (i) settle the arrears between enterprises and between enterprises and the Government; (ii) rehabilitate or restructure six enterprises that would remain in the public domain; (iii) privatize 14 enterprises that were deemed financially viable; and (iv) liquidate 15 enterprises that were considered nonstrategic and nonviable. In 1991, an action plan was prepared to restructure the remaining 22 public enterprises.

Broadly speaking, Mali’s public sector reform program was implemented satisfactorily. By late 1993, the restructuring of 42 public enterprises had been accomplished, of which 23 were liquidated and 12 were privatized. For most of the enterprises remaining on the privatization list, the necessary laws have passed the Parliament and negotiations with private investors are under way, including with foreign partners. All restructuring operations under the action plan are presently on schedule.

Only the few enterprises considered natural monopolies—those in energy, postal services and telecommunications, and the railway system–will remain under state control. The Government is reinforcing the management capacity of the companies remaining in its portfolio. The financial situation of some of these enterprises has improved somewhat lately (Appendix I, Table XVI), notably in the case of the Energie du Mali (EDM); this is due to a reduction of the Government’s arrears in 1993, as well as to enhanced recovery from the private sector.

VII. Money and Banking

1. Introduction

Mali became the seventh member of the West African Monetary Union (WAMU) on June 1, 1984, joining Benin, Burkina Faso, Côte d’lvoire, Niger, Senegal, and Togo. The WAMU was established in 1962; to strengthen the cooperation among the seven member countries, it was transformed into the West African Economic and Monetary Union (WAEMU) following the signing of a new treaty on January 10, 1994. The WAEMU was formally established and started operations on August 1, 1994. The new Union preserves the monetary functions of the WAMU, providing for a common currency, the CFA franc, issued by a common central bank, the Central Bank of the West African States (Banque Centrale des Etats de l’Afrique de l’Ouest–BCEAO), with headquarters in Dakar and national agencies in each of the member states; a common interest rate structure; unhindered capital mobility within the Union; and the pooling of foreign exchange reserves. In accordance with an agreement concluded on December 4, 1974, France guarantees the free convertibility of the CFA franc into French francs by extending overdraft facilities through an operations account held at the French Treasury. As of January 12, 1994, and following the change in the parity of the CFA franc, the fixed rate at which France guarantees the free convertibility has been changed from CFAF 1 - F 0.02 to CFAF 1 - F 0.01. 1/ As part of this agreement, the BCEAO is required to deposit the equivalent of at least 65 percent of its foreign exchange holdings in the operations account, a subaccount is maintained for each member state. In return, France provides a foreign exchange guarantee in terms of an international unit of account, which is currently the SDR. This guarantee holds for the part of the BCEAO’s reserves held in the operations account. Mali’s subaccount balance in the operations account has been positive since it joined the Union, except in 1986-87.

Monetary and credit policy in the WAEMU is broadly defined by its Council of Ministers, the Union’s highest policymaking body, which is composed of two ministers from each member state. The Council of Ministers sets the minimum acceptable ratio between the BCEAO’s gross international assets and its liabilities, and the expansion of credit compatible with this ratio. The Board of Directors of the BCEAO, composed of two directors appointed by each member state and from France, determines the monetary and credit policies of member states on the basis of guidelines provided by the Council of Ministers, and consistent with the targets for monetary expansion and for the external asset position of the Union as a whole. A National Credit Committee (NCC) is responsible for the management of monetary and credit policies in each member state, in accordance with the decisions of the Board of Directors of the BCEAO. The NCC, chaired by the Minister of Finance, is composed of the country’s two representatives to the Board of Directors of the BCEAO, four other senior officials appointed by the Government, and, since March 1988, a representative appointed by France.

2. Policies and insruments

Monetary policy in the Union has been conducted on the basis of an annual monetary program geared toward protecting the foreign reserves of the BCEAO. The conduct of monetary policy in the WAMU underwent significant reforms over the period 1989-93. Prior to the initiation of these reforms, the BCEAO relied largely on: (i) quantitative credit ceilings; (ii) limits on central bank financing; (iii) a discount rate; (iv) an interbank money market to maximize the retention of funds within the WAMU and the effective use of the liquid assets of the commercial banks; and (v) a minimum liquidity ratio and two solvency ratios. The principal objective of the reform of monetary policy instruments was to foster a more efficient and flexible monetary policy by gradually replacing administrative controls over money and credit with more indirect and market-oriented controls, including: (i) the liberalization of banking conditions; (ii) a major reform of money market operations; (iii) the establishment of minimum reserve requirements; (iv) the promotion of an active regional interbank market; and (v) the strengthening of prudential regulations.

As part of the reforms of October 1989, the preferential discount rate and sectoral controls on credit were abolished, the interest rate structure was simplified, and deposit money banks were given more freedom in determining their own deposit and lending rates. The NCC of each member country continued to propose targets for money supply and credit growth, as well as ceilings for central bank financing for the following year to meet the economic and financial requirements of the economy, and the foreign exchange reserve objective established by the Council of Ministers. The BCEAO included crop credits in its overall refinancing ceilings for commercial banks, which had to be observed on a quarterly basis. With a view to expanding the role of the money market in the financial system, nonbank financial institutions and the Treasury were given access to advances from the money market, and direct interbank lending was liberalized. Excess liquidity was absorbed by the BCEAO at market-related rates, and excess supply was placed by the BCEAO in the French money market. In case of shortage of funds in one country, the national agency of the BCEAO provided overnight advances at the regular discount rate.

The supervision of banks was strengthened with the establishment of a supranational banking supervision commission (Commission Bancaire de l’Union Economique et Monétaire Ouest Africaine), which became operational in October 1990. The Commission is located in Abidjan, and has the mandate to conduct frequent audits of all banks operating in the Union. Furthermore, a number of prudential regulations were introduced in June 1991, including a minimum risk weighted capital ratio of 4 percent; a ratio of long-term bank resources to long-term credit set at a minimum of 75 percent; a liquidity ratio set at a minimum of 60 percent; and a loan and commitment to a single borrower ratio set at 100 percent of a bank’s capital base. In January 1992, the required prior authorization of loans was replaced by a new creditworthiness rating system for all lending operations. As a result, commercial banks and other financial institutions must seek an accord de classement from the Central Bank after extending loans to borrowers to which they have an exposure in excess of CFAF 200 million. These accords, to be given by the Central Bank within 60 days, refer to the financial soundness of the borrowers and the loans.

Further reforms were implemented in October 1993, including the elimination of ceilings on commercial bank credits; the transformation of the money market into a weekly auction; the further liberalization of interest rates; and the introduction of minimum reserve requirements. The statutory ceiling on central bank credit to the government remains at 20 percent of the country’s fiscal receipts in the previous complete fiscal year. Under the weekly auctions in the money market, the Central Bank announces the amount of liquidity it is ready to absorb from or provide to the market, and determines the interest rate on the basis of bids made by participating banks. Consequently, banks are no longer assured to be able to place all their excess liquidity in the money market, or to meet all their liquidity needs. Banks are free, however, to enter into bilateral transactions in an interbank market. The Central Bank will continue to provide liquidity as lender of last resort through repurchase agreements and rediscounts. Commercial banks have been granted freedom in setting deposit and lending rates under the proviso that lending rates cannot exceed the legal usury rate set at twice the prevailing discount rate; the rates for short-term time deposits of less than CFAF 5 million and passbook savings accounts continue to be administered by the BCEAO. The new system of reserve requirements sets a minimum reserve coefficient of 1.5 percent applied to ordinary short-term credits and demand deposits.

A decision in June 1994 to introduce a securitization scheme may permit the development of open market operations in the future and assist in mopping up part of the increasing excess liquidity of commercial banks. The scheme entails the issuance to banks and nonbanks of securities representing the BCEAO’s consolidated credits to governments. These securities will have a nominal unit value of CFAF 50 million with a 12-year maturity at 5 percent tax-exempt interest rate payable semiannually, and can be used to meet the reserve requirements of banks and to guarantee possible central bank refinancing. The share of Mali in the total securitization scheme will amount to CFAF 23.9 billion, representing the consolidated loan to the Government arising from the restructuring of the Banque de Développement du Mali.

3. The banking system

At end-1993, the banking system of Mali comprised, besides the national agency of the BCEAO, seven commercial banks (Appendix I, Table XVII). The Banque de Développement du Mali (BDM-SA), one of the largest commercial banks, was established in 1968 with a capital of CFAF 3 billion. It plays a major role in the Malian economy, stemming in large part from its function as banker of the public sector. Reflecting the financial difficulties in the public enterprise sector in the 1980s, inappropriate management and banking practices, mounting defaults by private borrowers, and the inability to recover the collateral on defaulting loans, by mid-1987, 75 percent of the BDM’s total credit portfolio was classified as nonperforming loans. During 1988-89, steps were taken to restructure the BDM, which involved the streamlining and modernization of its operations, the opening of its equity to private shareholders, and a financial restructuring involving CFAF 62.5 billion (40 percent of Mali’s money stock at end-June 1989) worth of nonperforming loans. Financial support for the restructuring was provided by the World Bank and other cofinanciers under the PESAF, the French Caisse Centrale de Coopération Economique (CCCE), the Malian Government, and the BCEAO, through the consolidation of CFAF 23.9 billion of outstanding short-term credit. As a result of the restructuring, the BDM-SA was established on June 30, 1989, as a mixed capital company in which the Government holds 20 percent of the shares. 1/ Since then, the BDM-SA has resumed normal banking operations and has been managed by the Banque Marocaine du Commerce Extérieur, one of the private shareholders, under a fixed-term contract, which was extended in 1992 for an additional two years through September 1994. The BDM-SA operates ten branches across the country. Since the restructuring, its deposits have increased by 21 percent between mid-1989 and end-1993, to reach CFAF 40.4 billion, almost equally divided between public and private deposits.

The Banque Nationale de Développement Agricole (BNDA) became Mali’s largest bank after its capital was doubled to CFAF 3.8 billion between 1990 and 1993. This expansion was accompanied by an increased participation in its capital by the French CCCE and the German foreign aid agency (Deutsche Entwicklungs Gesellschaft–DEG) to 19.6 and 18.5 percent, respectively. The BNDA’s other shareholders include the Government (39.5 percent), the BCEAO (16.8 percent), and the BDM-SA (5.6 percent). The BNDA was established in 1981 with a view to improving the availability of credit and the quality and responsiveness of financial services to rural development agencies and individual farmers; it conducts its operations through 15 regional branches. Between end-1990 and end-1993, its deposits grew by 72 percent, reflecting increased deposits of the public sector.

The three other banks that are partly government-owned are smaller in terms of capital and deposits, and their operations are concentrated mainly in Bamako. The Banque Malienne de Crédit et de Dépôts (BMCD), established in 1961, with a capital of CFAF 1.0 billion (51 percent by the Government and 49 percent by the Crédit Lyonnais), had deposits of CFAF 23.4 billion in five branches at end-1993. The Banque Commerciale du Sahel (BCS), the former BALIMA, was established in 1982 and has a capital of CFAF 1.1 billion, with the Government (49.5 percent), foreign Arab banks (50 percent), and the Malian private sector (0.5 percent) as shareholders; it has one branch in Bamako. By end-1990, the former BALIMA had become illiquid with a portfolio of CFAF 2.0 billion of nonperforming loans; subsequently, the bank was restructured, its capital augmented and its capital base broadened by including private Malian capital. The Société des Chèques Postaux et de la Caisse d’Epargne (SCPCE) was created on October 29, 1990, as a result of reforming the insolvent postal checking system. The reform was implemented with financing from the World Bank and the CCCE, with a view to restoring the liquidity of CFAF 4.3 billion of nongovernment deposits that could not be accessed, except for settling payments to the Treasury. The SCPCE was established as a mixed capital company in which the Government holds 20 percent of the shares; since beginning operations in April 1991, it has been managed by a Malian shareholder bank under a fixed-term contract. The SCPCE is registered as a bank under the supervision of the BCEAO, but has no right to issue credit.

The remaining two commercial banks, the Banque Internationale pour l’Afrique Occidentale du Mali (BIAO-Mali) and Bank of Africa (BOA), are fully privately owned. The BIAO-Mali was established in 1980, and is controlled by the external parent bank (52.1 percent) with a minority shareholding (47.9 percent) of private nationals. Its capital base was augmented from CFAF 1.3 billion in 1990 to CFAF 3.4 billion by end-1993. In terms of deposits, the BIAO is Mali’s largest bank; its deposits in five branches had reached CFAF 44.5 billion by end-1993. The Bank of Africa-Mali, established in 1982, has a capital base of CFAF 1.4 billion, of which 75.6 percent is held by the Malian private sector and the remainder by private foreign shareholders; its deposits in four branches amounted to CFAF 14.3 billion at end-1993.

4. Overall monetary developments 1/

During 1989-92, monetary developments were marked by a significant improvement in the external position of the banking system (Table 6; Appendix I, Tables XVIII-Table XXI). After increasing strongly from CFAF 12.8 billion at end-1989 to CFAF 65.4 billion at end-1991, the rise abated and net foreign assets reached CFAF 67.8 billion at end-1992. The sizable improvement in 1989-91 resulted from higher export receipts of cotton and livestock and a rise in private and official transfers, and the 1992 outcome reflected the drop in export prices for cotton and livestock and a declining inflow of external assistance. The increase in net foreign assets was mainly reflected in the substantial improvement in the net external position of the Central Bank, from CFAF 14.0 billion at end-1989 to CFAF 63.5 billion at end-1992. The credit position of Mali in the operations account with the French Treasury increased from CFAF 29.5 billion at end-1989 to CFAF 80.3 billion at end-1992.

Table 6.

Mali: Monetary Survey, 1989-94 1/

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Source: Data provided by the BCEAO.

Data may not add up because of rounding. Including transactions and reclassifications resulting from the restructuring of the Banque de Développement du Mali and reclassification of deposits resulting from other bank audits. Data are not comparable with the previous RED tables for the period 1989-90 as these were adjusted to a 1987 accounting base to provide comparability with previous years.

Accounts revalued at the new exchange rate of CFAF 100 per French franc.

Excluding SDR allocations and medium- and long-term liabilities.

Including SDR/CFA franc exchange rate revaluation on pre-June 1984 Fund purchases. Including the stabilization fund for the cotton sector and the consolidation of debit balances of the BDM at the BCEAO.

Including nonstatutory advance to the Treasury resulting from the consolidation of the former Central Bank’s debt of CFAF 41.8 billion, including interest thereon.

Net domestic assets declined steeply in 1989-91–owing mostly to a contraction in net credit to the Government resulting from the adjustment efforts since 1988–and remained virtually unchanged in 1992. The rate of growth of credit to the economy slowed from 3.2 percent of beginning-of-period money stock in 1989 to some 1 percent in 1990-91, mainly on account of the tight credit conditions, before accelerating to 3.6 percent in 1992. Reflecting the above developments, the growth of broad money fluctuated strongly during this period. After a decline of 4.9 percent in 1990, the money supply increased by 12.5 percent in 1991, before moderating again to 3.4 percent in 1992. The velocity of circulation of broad money fluctuated around 4.7, and the composition of the money supply remained virtually unchanged.

In 1993, net foreign assets of the banking system improved further, to CFAF 76.8 billion, owing for the most part to a rise in the value of exports. Credit developments mainly reflected the Government’s increased reliance on bank financing, in order to compensate for a decline in domestic revenue and external assistance. The Government exceeded its statutory credit ceiling of CFAF 18.9 billion by CFAF 2.2 billion, and increased its recourse to commercial banks, particularly by drawing on its deposits. By end-December 1993, net government credit had increased by 4.8 percent of the beginning-of-period money stock. Credit to the economy grew only moderately, by 1.7 percent of the beginning-of-period money stock, on account of the continued prudent credit policy of the authorities, the overall decline in economic activity, and a cautious lending stance of commercial banks. While ordinary credit remained subdued during the first three quarters of the year, an overall increase of 3.6 percent was recorded by end-December, reflecting in part the impact of the program adopted by the Government to reactivate the private sector, with financial assistance of the Caisse Franchise de Développement (CFD). Crop credit declined by almost 2 percent, as a result of a substantially lower level of credit extended to the cotton sector which experienced a 20 percent production decline in the 1993/94 season. In view of the increase in net foreign assets and in credit to the Government, the broad money supply increased by 8.4 percent in 1993 and its velocity of circulation declined to 4.4, from 4.7 in 1992.

Following the change in the parity of the CFA franc on January 12, 1994, the net foreign assets of the banking system increased strongly in the first quarter of 1994, by 27.6 percent of the beginning-of-period money stock; the improved receipts of the export sector, substantial disbursements of external budgetary assistance in support of the Government’s adjustment effort, as well as a return of flight capital were the prime factors behind this rise. Net domestic assets declined by 1.6 percent of beginning-of-period money stock in the first quarter of 1994, mainly on account of an important decline in net credit to the Government as a result of a strong revenue performance, the disbursements of external budgetary assistance, and a cautious spending policy. As a result of these developments, broad money increased by 25.4 percent.

During the first quarter of 1994, commercial banks became increasingly liquid, because of sizable increases in bank deposits, reflecting the return of flight capital and the improved financial performance of export-oriented enterprises, as well as the cautious attitude of commercial banks in their lending operations. The excess liquidity of the banking system affected the WAEMU as a whole, and was further aggravated toward end-June. While Malian commercial banks were able to place about 66.4 percent of their excess liquidity in the money market at end-1993, this ratio fell to 24.3 percent by end-March 1994 and to only 3.4 percent by end-June, as Malian banks progressively increased their bids in the money market to CFAF 64 billion.

As a result, the commercial banks accumulated large nonremunerated reserves with the Central Bank. At the same time, Malian banks became active in the zone’s interbank market, where loans were negotiated directly and without BCEAO interference with other banks in the zone. Since the first transaction by Malian banks on December 23, 1993, and through end-June 1994, a total portfolio of CFAF 17.7 billion had been extended to other banks outside Mali, ranging in duration between one day and four months.

5. Interest rates

Interest rate policy in Mali is subject to the rules and constraints inherent to WAEMU membership and the exchange rate arrangements of the French franc zone. Until October 1993, interest rates were seldom used as an active instrument of monetary policy, but were used more frequently since then. The discount rate was adjusted six times between 1989 and end-1993 and four times during the first nine months of 1994 (Table 7; Appendix I, Table XXII). The money market rates were adjusted more frequently, in particular after October 1993 (Appendix I, Table XXIII).

Table 7.

Mali: Interest Rates, 1989-94

(In present)

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Source: Data provided by the BCEAO.

Until October 14, 1993, these rates were for overnight advances; on that date, the money market was transformed into a weekly auction.

Since January 1, 1985, deposit money banks have no longer required to remunarate sight deposites.

Minimum rates for deposits above CFAF 2 million; from October 2, 1989, minimum rates for deposits above CFAF 500.000. Since October 1. 1993, minimum rates for deposits equal or less than CFAF 5 million; rates, on larger deposits are free.

Average monthly money market rate minus 2 percent.