Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix briefly surveys the progress achieved by Mali in the area of economic adjustment in the decade since 1988. This is followed by a discussion of the principal areas where the Malian government is considering the implementation of new reforms in the period ahead. The paper analyzes the financial sector in Mali. It highlights that in the late 1980s, the financial sector, in particular the banking system, faced a major liquidity and solvency crisis characterized by a high level of nonperforming loans.


This Selected Issues paper and Statistical Appendix briefly surveys the progress achieved by Mali in the area of economic adjustment in the decade since 1988. This is followed by a discussion of the principal areas where the Malian government is considering the implementation of new reforms in the period ahead. The paper analyzes the financial sector in Mali. It highlights that in the late 1980s, the financial sector, in particular the banking system, faced a major liquidity and solvency crisis characterized by a high level of nonperforming loans.

Mali: Basic Data 1

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Data may not add up owing to rounding.

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

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 Russia.

Mali: Selected Social and Demographic Indicators 1

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Sources: World Bank, Social Indicators of Development, 1996, and African Development Indicators, 998/99, and World Development Indicators, 1998 CD-ROM; and staff estimates.

Latest single year between 1990 and 1997, unless otherwise indicated.

I. Structural Adjustment: Achievements and Prospective Agenda1

A. Introduction

1. Mali is one of the least developed countries in the world, ranking 171st out of 174 countries included in the 1998 UNDP Human Development Index (HDI).2 A landlocked Sahelian nation, Mali opted for a state-controlled model of economic development shortly after gaining independence in 1960. Subject to cyclical drought and highly dependent upon three principal export commodities (cotton, livestock, and gold), Mali’s social and economic development remained extremely tenuous from 1960 until the early 1990s.3 Prompted by disappointing economic performance, which was exacerbated by a serious drought over the 1982–85 period, the Malian government decided in 1986 to begin implementing structural adjustment policies. These efforts received the financial support of the IMF and the World Bank, beginning in 1988. Implementation of adjustment policies has largely been uninterrupted since then, focusing primarily on the following key areas: macroeconomic stabilization, through fiscal consolidation and tax reform; liberalization of price and trade policies; regulatory reform; and public enterprise and agricultural sector reform. Mali is a member of the West African Economic and Monetary Union (WAEMU) and participates actively in all regional economic integration initiatives that involve important reforms in areas of common interest to the Union.4 Overall, Mali has made important progress under its economic adjustment and reform programs, although the economic situation continues to be fragile and a substantial unfinished reform agenda remains.

2. Mali’s-adjustment efforts gained the financial support of the Fund in 1988, with the adoption of a policy framework paper and strong medium-term macroeconomic policies designed to stabilize the economy, prepared in consultation with the staffs of the IMF and the World Bank. Since then, Mali’s collaboration with the Fund has included the successful implementation of a Stand-By Arrangement (August, 1988), two annual arrangements under the Structural Adjustment Facility (SAF), and two three-year arrangements under the Enhanced Structural Adjustment Facility (ESAF). Mali’s current three-year ESAF-supported adjustment program will conclude at the end of March 1999. The World Bank has supported Mali’s adjustment effort over this period through structural and sectoral lending operations. In addition, in September 1998, Mali was deemed eligible by the Executive Boards of the IMF and the World Bank to benefit from the Heavily Indebted Poor Country (HIPC) Initiative, with a completion point at end-December 1999.

3. Over the past decade of economic reform, Mali has transformed its economy into a largely market-based system and made the transition to a democratic form of government in 1992. In early 1994, the Malian government significantly strengthened its medium-term adjustment strategy through a 50 percent devaluation of the CFA franc, a decision taken in concert with its WAEMU partners. The devaluation significantly improved Malian competitiveness and resulted in a strong rebound in economic growth and rising per capita incomes. In 1998, Mali held its second presidential elections, solidifying its commitment to democratic principles. Thus, with a renewed mandate and prospects of another three-year ESAF program and debt relief under the HIPC Initiative, the government intends to pursue the adjustment process while consolidating progress already achieved in the areas of liberalization and macroeconomic stability. Having completed a number of critical structural reforms over the past decade, Mali is now set to enter a new phase of adjustment, focusing on reforms designed to stimulate high and durable economic growth, reduce economic fragility, and alleviate poverty.

4. The next section briefly surveys the progress achieved by Mali in the area of economic adjustment in the decade since 1988. This is followed by a discussion of the principal areas where the Malian government is considering the implementation of new reforms in the period ahead.

B. Structural Reform Policies and Macroeconomic Adjustment, 1988–98

5. Mali’s adjustment efforts since 1988 have been supported by the IMF and the World Bank through financial and technical assistance, and have generally been sustained. There were, however, two exceptions: an interruption in 1991–92 during the transition to a democratically elected government; and between August 1993 and April 1994, owing to prevailing social tensions and the need to develop policies designed to accompany the change in the CFA franc parity in January 1994. Since 1994, the government has completed the remainder of the first three-year ESAF program; negotiated and implemented a successor ESAF arrangement.

Structural reform policies

6. The transformation and modernization of the Malian economy from a state-controlled system into one increasingly governed by market forces involved extensive structural reforms across a broad spectrum. In line with the authorities’ objective of increasing sustained economic growth, structural reforms have focused on promoting private sector activities through improving the legal and regulatory environment, increasing productivity and diversifying production in the agricultural sector, and reducing the size and fiscal burden of the public enterprise sectors, while increasing its efficiency. Outlined below is the sequencing of the most significant reforms implemented over the past decade by the Malian authorities.

7. Price and trade policy liberalization (Box 1). Early in the adjustment process, priority was given to the removal of legal constraints on private sector activities, including the abolishment of price and quantitative controls on trade. Until 1986, the Malian authorities maintained a system of rigid price controls over a wide range of domestic and imported products. In 1986, a policy of price and marketing liberalization was initiated, with price controls limited to 58 “strategic products.” By January 1990, only 4 product prices were subject to control, and by July 1, 1992, when controls on petroleum product prices were eliminated, almost all prices in Mali were market determined.5 Subsequently, Mali has maintained a liberalized pricing system, including during the period of significant price pressures immediately following the devaluation of the CFA franc in early 1994.

8. Private sector development was also encouraged through the reform of trade policies. In 1986 all export monopolies were eliminated, followed in 1988 by the elimination of all import monopolies (with the exception of cigarettes and pharmaceuticals); the pharmaceutical import monopoly was subsequently eliminated in 1991. In 1990, the export and import licensing system was replaced with a simpler registration system, and the independent preshipment inspection and verification of imports was initiated. All taxes and restrictions on exports (with the exception of those on gold) were also abolished in 1990.

Mali: Chronology of Price and Trade Policy Reforms

  • Limiting of price controls to 58 “strategic products” (1986)

  • Elimination of all export monopolies (1986)

  • Elimination of all but two import monopolies (1988)

  • Institution of preshipment inspection/verification of imports (1990)

  • Limiting of price controls to 4 products (1990)

  • Replacement of import/export licensing with registration system (1990)

  • Abolition of all taxes and restrictions on exports (1990)

  • Limiting of price controls to only petroleum products (January 1991)

  • Elimination of price controls on petroleum products (July 1992)

  • Maintenance of a liberalized pricing system (July 1992 to the present)

9. Legal and regulatory reform (Box 2). In line with the objective of fostering private sector development, the government has implemented a number of significant legal and regulatory reforms. With a view to developing gold mining, the mining code was revised in 1991, limiting the government’s equity position in new mining operations to 20 percent, ensuring uniform treatment of exemptions, and simplifying procedures for obtaining prospecting and mining operation licenses. In order to promote job creation, the national labor and employment agency, which exercised a hiring monopoly, was abolished in 1991. In September 1992, a revised labor code providing greater flexibility in private and public hiring and dismissal procedures was adopted. At the same time, the commercial code was revised, simplifying the regulation of private firms. Also in 1992, the creation of private enterprises by domestic and foreign investors was facilitated with the streamlining of administrative procedures at the “one-stop investment window,” which has been established in 1990. The legal environment was improved with the strengthening of commercial courts and the establishment of administrative tribunals in 1995.

10. An important element of the WAEMU regional integration strategy is the harmonization of business laws through the Treaty on the Harmonization of Business Laws in Africa (OHADA), adopted in October 1993 by 15 African counties (representing the African franc zone countries). The initiative is designed to unify business laws, promote arbitration to resolve contractual conflicts, and improve the professional training of magistrates. WAEMU members states, including Mali, have made significant progress toward achieving the OHADA objectives, with the entry into force of five uniform acts, directly enforceable in all member countries, by January 1, 1999. These acts establish, inter alia, a regional court of justice, simplified procedures for loan recovery, a framework for settling liabilities in cases of bankruptcy, and accounting laws applicable to enterprises operating in signatory countries. Of particular significance in the context of the Malian financial system is the implementation of the uniform act on collateral, which should significantly improve the enforcement of obligations stemming from collateralized bank loans.

Mali: Chronology of Regulatory and Legal Reforms

  • Creation of one-stop investment window for business registration (1990)

  • Adoption of revised mining code (1991)

  • Abolition of national labor and employment agency (1991)

  • Revision of labor code, liberalizing hiring and dismissal procedures (1992)

  • Adoption of new commercial code, simplifying regulations applicable to private firms (1992)

  • Streamlining of administrative procedures at the “one-stop” investment window for creation and registration of new private enterprises (1992)

  • Establishment of administrative tribunals in three regions and strengthening of commercial courts (1995)

  • Establishment of a regional court of justice and arbitration (1997)

  • Implementation of five OHADA uniform acts, including an act regarding the recovery of collateral in the context of defaulted bank loans (1998)

11. Agricultural reform. In view of Mali’s high export concentrations for cotton and livestock, a key governmental objective has been to increase agricultural efficiency and diversify production while ensuring the security of food supply. Mali’s reform efforts concentrated on establishing appropriate incentive systems and strengthening the role of market mechanisms. Starting with the 1988/89 crop season, all producer prices for food crops were liberalized, and most state-owned production companies were privatized, most notably in the rice sector. The Office du Niger lost its rice marketing monopoly in the late 1980s, and in 1994 a new Office du Niger was created, limiting the former rice producers’ responsibilities to water management and the maintenance of irrigation facilities. Similarly, in 1990 the Office des Produits Agricole du Mali (OPAM) was stripped of its marketing monopoly, and its activities limited to the management of security food stocks and the distribution of food aid.

12. Mali’s traditional cash crop and most important export commodity is cotton. Beginning in 1989, efforts were initiated to increase productivity in the cotton sector through a restructuring program financed by the World Bank and other donors. Measures were introduced to improve competitiveness by increasing ginning yields, reduce costs, and introduce new, higher-quality varieties of cotton. As a result, seed cotton output increased significantly rising from 229,000 metric tons in the 1988/89 crop year to 320,000 metric tons in 1992/93. However, the cost-cutting measures instituted at the cotton marketing agency, Compagnie Malienne pour le Développement des Textiles (CMDT), were insufficient to offset the sharp decline in world cotton prices since 1991, and its financial viability deteriorated significantly. In response, output in the 1993/94 crop year fell by 25 percent to 240,000 metric tons of seed cotton, and the CMDT began to delay maintenance and shelve investment plans.

13. The cotton sector benefited considerably from the devaluation of the CFA franc in January 1994, as cotton export receipts doubled in CFA franc terms while production costs increased by only about 30 percent, allowing the CMDT to regain its financial viability. In June 1994, a performance contract between the government, the CMDT, and producers was signed, linking producer prices to world market prices and providing a floor price and a premium for first-quality seed cotton. Benefiting from the devaluation and a recovery in world cotton prices, the CMDT’s investment plans have been reinstituted, and four new ginning factories have been built since 1994, permitting a significant increase in the CMDT’s production zone and a concomitant increase in the number of Malians with access to the international cotton market. In 1997/98, seed cotton production reached a record 523,000 metric tons. Producer prices have been increased from CFAF 85 in 1993/94 to CFAF 185 for the 1998/99 crop year, significantly improving the incomes of cotton producers. The Malian government, conscious of the importance of cotton to the economy, is presently considering new reform measures for the cotton sector aimed at enhancing efficiency and the role of the private sector.

14. Public enterprise reform. Under the previous development model, Malian economic policies were characterized by state intervention in virtually all spheres of economic activity. This was evidenced in the public enterprise sector, which in the mid-1980s included over 90 enterprises, most of which were dominant in the sectors in which they were operating. Management of these enterprises was generally poor, leading to ill-conceived investment decisions, overstating, and lax financial control, which, in turn, resulted in severe financial imbalances and resource misallocation, with concomitant pressures on the public finances.

15. In 1988, the government launched a comprehensive reform program, the Public Enterprise Sector Adjustment Program (PESAP), with the support of the World Bank and other donors. Under this program, 35 enterprises were targeted for privatization, liquidation, or restructuring by 1992. The PESAP proved successful and was instrumental in reducing the financial imbalances of the public enterprise sector, primarily through liquidating loss-making firms but also through strengthening the management of those firms that remained in the government’s portfolio. The government’s price and trade policy liberalization policies also played a role in enhancing financial viability, permitting prices to be set so as to reflect production costs.

16. Since the completion of the PESAP in 1992, public enterprise reform continued, but at a slower pace. Between 1992 and 1996, 8 enterprises were privatized, 5 others liquidated, and several other restructured; in June 1996, the government adopted a new action plan for the public enterprise sector, targeting 40 enterprises for privation, liquidation, or restructuring.

17. All in all, starting in 1996, but especially between 1988 and 1998, the Malian authorities made significant progress in reducing the size of the public enterprise sector and in improving the financial performance of those enterprises remaining in the government’s portfolio. State involvement in the economy was significantly diminished, with the number of public enterprises declining from 90 to 36 at end-1998 (26 eliminated through liquidation and 28 through privatization) and the share of GDP produced by public enterprises falling from about 12 percent in 1987 to an estimated 7 percent in 1997. The aggregate operating results of the largest public enterprises improved significantly, moving from losses amounting to about 1 percent of GDP in the mid-1980s to surpluses on the order of 2 percent of GDP in recent years. Prior to the PESAP, public enterprises were accumulating payments and tax arrears, whereas by 1995 payments arrears were rare. Furthermore, procedures for divesture were simplified and codified in a draft public enterprise privatization law; capacity to monitor the performance of public enterprises was developed and institutionalized; and a National Privatization Commission was established in late 1998 to develop priorities and prepare future privatizations. At end-1998, 36 public enterprises remained in the government’s portfolio, still representing a significant unfinished agenda, some details of which are noted below (Section C).

18. Civil service reform. Civil service reform and, in particular, control of the wage bill, have played a significant role in Mali’s adjustment programs. In 1988, the civil service wage bill absorbed over 75 percent of tax revenue (Table 1) and accounted for 6.4 percent of GDP and over 60 percent of current budgetary expenditure, leaving little room for expenditures on the social sectors and public investment. Since 1988, the government has taken several measures to downsize public sector employment, including a cautious recruitment policy, a voluntary departure program to assist public servants in leaving the civil service and establishing themselves in the private sector, the privatization of several public enterprises and conversion of staff from public to private status, and the computerization of the civil service payroll in 1990. Between 1988 and 1993, employment in the civil service declined by about 30 percent.

Table 1.

Mali: Fiscal Trends, 1988–98

(In percent of GDP, unless otherwise indicated)

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Sources: Malian authorities; and staff estimates.

Defined as total revenue minus total expenditure and net lending, excluding interest payments and foreignfinanced capital expenditure.

Defined as total revenue minus total expenditure and net lending, excluding foreign-financed capital expenditure.

19. Following the devaluation, the authorities were successful in controlling the civil service wage bill; with two general pay increases in 1994 (10 percent in April and 5 percent in October), the wage bill as a percentage of tax revenue decline from 49 percent in 1993 to 43 percent in 1994, and to 36 percent in 1995.

20. Since 1995, the government has continued its cautious policies with respect to the civil service: recruitment has been prudent, favoring the health and education sectors, and wage increases have been modest. As of end-1998, the wage bill accounted for 3.7 percent of GDP, 27 percent of tax revenue, and 35 percent of government current expenditure, representing a much more sustainable situation than existed at the outset of the adjustment process.

21. Reform in money and banking. (See Section II, The Financial Sector in Mali, for a description of the evolution of the banking system over the past decade). The conduct of monetary policy in the WAMU underwent significant reform in the period 1989–93. Previously, the BCEAO relied on administrative and credit controls to implement monetary policy. The principal objectives of the reform of monetary policy instruments was to foster more efficient and flexible monetary policy using indirect, market-oriented instruments. As of October 1, 1993, all lending and deposit rates were deregulated, with the exception of passbook savings rate, a system of reserve requirements was introduced, and the functioning of the money market, and particularly the interbank market, was strengthened. In 1996, the BCEAO began using open market type operations to implement monetary policy.

22. Banking supervision in the WAEMU was strengthened in 1990 with the establishment of a Regional Banking Commission, headquartered in Abidjan. The commission has a mandate to conduct audits of all banks operating in the union. In June 1991, the commission introduced prudential regulations with which all commercial bank operating in the WAEMU must comply or face sanctions.

23. In the mid-1980s, the banking system of Mali comprised, besides the national agency of the BCEAO, six commercial banks. At that time, Malian banks faced serious problems, owing largely to the deteriorating loan portfolio of the Banque du Développement du Mali (BDM), the largest bank that was wholly owned by the government. In late 1987, over 75 percent of the BDM’s loan portfolio was nonperforming, a situation that arose out of the BDM’s continued financing of the public enterprise sector’s heavy losses, inappropriate management and banking practices, and an inability to recover collateral on defaulted loans. During the period 1988–89, steps were taken to restructure the BDM, including its transformation into a mixed capital company, as government participation was limited to 20 percent, the staff was downsized and operations computerized, and management was contracted to a foreign private bank. The related financial restructuring operations involved financing from the government of Mali, the BCEAO, the World Bank, and other cofinanciers under the PESAP. Following the restructuring, the newly created BDM-SA successfully resumed normal banking operations.

24. The government of Mali participates in the ownership of several other commercial banks, including most notably the Banque Malienne de Crédit et de Dépôts (BMCD) and the Banque Internationale pour le Mali (BIM-SA). It intends to disengage from participation in these banks; the restructuring of the BIM-SA and the opening-up of the capital of the BMCD are planned for the first half of 1999.

Mali: Chronology of Key Financial Sector Reforms

  • Mali joins WAMU (1984)

  • BCEAO adopts use of indirect instruments to implement monetary policy (1989–93)

  • Regional Banking Commission, charged with zone-wide banking supervision, is established (1990)

  • Regional Banking Commission issues prudential guidelines (1991)

25. Tax and tariff reforms. In the early 1980’s the sources of government revenue were heavily weighted toward indirect taxes, especially taxes on international trade. The tax system was characterized by excessive dependence on specific excise taxes and export and import taxes assessed on administrative values. It was also characterized by a large tax-exempt sector, whose imports and domestic turnover accounted for a significant share of industrial and commercial activity, as well as excessive ad hoc exemptions. These factors contributed to the government’s relatively weak revenue performance throughout most of the 1980s.

26. In 1989, a comprehensive tax reform attempted to lay the basis for a rationalized tax system and improved tax administration, with a view to producing a sustained improvement in government revenue performance. Key measures included the strengthening of the customs administration through computerization, the assessment of import duties on actual rather than administrative values, the verification of import value by a reputable international firm to reduce underinvoicing, the reduction of ad hoc exemptions, the opening of additional tax centers and the improved monitoring of tax obligations and payments. In the event, these discretionary reforms increased tax revenue only marginally, from 9½ percent of GDP in 1988 to 9.8 percent of GDP in 1990, insufficient vis-à-vis the improvement in revenue performance sought by the authorities.

27. In 1991, additional reforms were implemented to improve the efficiency of the tax system, notably including the replacement of the sales tax with a value-added tax (VAT) and a special tax on services (TPS) similar to the VAT; the rationalization of customs duties; and the replacement of the domestic tax on petroleum products with a customs duty. These reforms met with substantial resistance, ultimately resulting in the abolition of the poll tax. Tax revenue as a percentage of GDP rose to 12.3 percent in 1991, but declined to 10.4 percent in 1992, largely owing to social disruptions that led to the destruction of customs facilities.

28. Immediately following the devaluation of the CFA franc, important measures were taken to broaden the tax base, durably strengthen tax collection, and reduce exemptions and tax evasion. At the same time, to limit domestic cost increases in the wake of the devaluation, certain duties and income tax rates were reduced. In particular, the maximum cumulative import tariff rate was reduced from 61 percent to 36 percent, personal and corporate income tax rates were lowered, and the normal VAT rate was reduced from 17 percent to 15 percent. In 1995, the number of goods exempted from the VAT or subject to the reduced rate was significantly lowered. In addition, a large taxpayer’s unit was established to improve monitoring of the largest enterprises beginning in 1996, and computerization was introduced. In 1997, a common taxpayer identification number system was implemented for use by all tax collection agencies, with a view to enhancing compliance. Also in 1997, a duty drawback system for petroleum imports was introduced, increasing compliance and reducing fraud.

29. As a result of these measures, revenue performance has improved over the past few years; over the past decade, tax revenues as a percentage of GDP increased from 9.5 percent in 1988 to an estimated 13.6 percent of GDP in 1998 (See Table 1).

30. In late 1997, the WAEMU decided to proceed with the initiative for a union-wide common external tariff (CET), defining a precise calendar for implementation. The ultimate objective is to put in place by January 1, 2000, a tariff structure consisting of four rates: zero percent, 5 percent, 10 percent, and 20 percent. The initial phase of the CET began July 1, 1998, when all import duties were subject to an overall ceiling of 30 percent and tariffs on intracommunity trade were reduced by 60 percent. A second phase, implemented as of January 1, 1999, limits the number of tariff rates to four: zero percent, 5 percent, 10 percent, and a temporary maximum rate of 25 percent. Additionally, provision has been made for a statistical tax that would not exceed 1 percent. For Mali, implementation of the CET involves a reduction in average tariff rates, as well as potential revenue losses estimated at some ¼ of 1 percentage point of GDP in 1999 and close to 1 percent of GDP in 2000.

Macroeconomic stabilization and adjustment

31. As mentioned above, economic growth and per capita income, on average, declined in Mali in the 1980s. By contrast, after the implementation of initial structural reforms, real GDP grew by about 2¾ percent per annum over the period 1988–94. Since 1994, real economic growth has further accelerated, averaging about 6 percent per annum, and real per capita GDP growth has resumed at a rate of about 2 percent per year.6 The rate of consumer price inflation (on an end of period basis), after peaking at about 32 percent in 1994 owing to the devaluation, returned to the very low inflation rates prevailing prior to the devaluation.

32. Mali’s macroeconomic adjustment efforts have focused to a large extent on gaining control over the public finance situation through enhanced revenue mobilization efforts and the implementation of tight expenditure policies. The overall government deficit (on a commitment basis and excluding grants) declined from 10½ percent of GDP in 1988 to 8½ percent in 1990. It rose during the period 1991–92 (owing to social disturbances) and again as a result of the devaluation, peaking at 13.7 percent of GDP in 1994. In the period 1995–98, the deficit was reduced by over 6 percentage points of GDP, reaching an estimated 7½ percent of GDP in 1998, and the domestic primary balance has been in surplus over the past few years. In the 1980s and early 1990s, the government was accumulating external and domestic payments arrears. The stock of external payments arrears was cleared at the end of 1994; none have been accumulated since that date. Domestic payments arrears have not been incurred since 1993, and the accumulated stock of arrears at end-1992 has since been reduced in an orderly fashion and should be fully cleared by mid-1999. Furthermore, in 1995 the government ended its use of statutory advances from the BCEAO.

33. As noted above, the tax reforms and administrative measures implemented over the past decade have increased government tax revenues by over 4 percentage points of GDP. Over the same period, total government revenue increased from 14½ percent of GDP in 1988 to 15.4 percent of GDP in 1998. From 1988 to 1998, total government revenue and grants has remained in the range of 20–23 percent of GDP, as a diminishing share of foreign grants was replaced by an increasing share of domestic tax receipts.

34. Total expenditure was reduced from 25 percent of GDP in 1988 to 23 percent in 1998. However, as the government has moved to control the civil service wage bill and low-priority expenditure, resources have been freed for use in the social sectors and for public investment. Social sector spending (health and education) was increased from a low of 4 percent of GDP in 1993 to about 5½ percent of GDP in 1998, and domestic financing of investment expenditures rose from 1¼ percent of GDP in 1993 to almost 2½ percent in 1998. Finally, the social safety net expenditures, previously nonexistent as a budgetary item, were established in 1994 and accounted for 0.8 percent of GDP in 1998.

35. The external current account deficit (excluding transfers) was reduced to an estimated 8.8 percent of GDP in 1998, down significantly from 16.3 percent in 1988. The 50 percent devaluation of the CFA franc vis-à-vis the French franc resulted in a 38 percent decline in the real effective exchange rate in 1994, leading eventually to a strong increase in exports and a shift in private consumption from imported goods to domestic products. Exhibiting J-curve effects, the current account deficit (excluding grants) rose significantly in 1994 to 16.9 percent of GDP, before declining to 13.9 percent in 1995. The current account adjustment continued over the period 1996–98, as import growth remained moderate, and Mali succeeded in substantially maintaining the improvement in international competitiveness gained through the devaluation, and cotton fiber exports continued to expand. Additionally, gold exports have increased significantly following the opening of a large new gold mine in 1997.

C. The Agenda Ahead

36. Having implemented basic structural adjustment policies over the past decade, Mali is now in a position to seek higher, more durable economic growth. In order to do so, further deepening of structural reforms is required, as is the implementation of so-called second-generation reforms, particularly in the areas of health, education, and the judicial system. The government must more fully disengage itself from economic activities that are best performed by the private sector and continue to concentrate on private sector development efforts.

37. Over the period ahead, the government should focus on the following areas that it has identified as priorities:

  • Privatization and public enterprise reform. It is essential that the electricity and telecommunications industries be put on a proper footing. Current government plans call for the electricity and water company (EDM) to be offered for sale by mid-1999, the telecommunications industry to be opened to free competition in early 1999, and SOTELMA, the telecommunications company, to be privatized in the year 2000. In the banking sector, the restructuring of the BIM-SA and the opening of the BMCD’s capital to private participation should be accomplished by mid-1999. The government is also preparing a final action plan for public enterprise reform covering the 1999–2001 period.

  • Cotton sector reform. The government has recently concluded a comprehensive technical audit of the cotton industry in Mali, with a view to identifying practical measures that could increase productivity in the sector and raise the incomes of farmers. The audit should also enable the government to define its position regarding increased competition and private sector participation in the sector.

  • Financial sector reform. Another government priority for the period ahead is to improve financial intermediation in the financial sector. In addition to its commitment to disengage government from ownership of banks, other initiatives will likely be forthcoming as a result of a financial sector review recently conducted in collaboration with the World Bank.

  • Civil service reform. A comprehensive civil service employment policy is being prepared that will allow the government to rejuvenate and modernize the civil service without resorting to net new recruitment or relaxing its strict control over the wage bill. In the area of general employment, the government will be developing youth training and apprenticeship programs.

  • Judicial reform. Over the past several years, domestic and foreign investors have convinced the Malian government of the need to reform the judicial system. Thus, in the period ahead, the government should develop plans to overhaul the judicial system with a view to making it impartial, fair, and more transparent.

  • Social initiatives. In seeking to foster higher-quality growth, the Malian government plans to focus attention and devote increased resources to health and education. With regard to education, the government intends to improve enrollment and the quality of education. In the health sector, its objectives are to improve access to, and the quality of, basic health care. Specific goals and objective for the education and health sectors have been fixed in the context of the HIPC Initiative.

II. The Financial Sector in Mali7

A. Introduction

38. Efficient financial intermediation improves financial savings mobilization and resource allocation, by evaluating and selecting the most promising and competitive entrepreneurs and projects, while providing a vehicle for diversifying risks and fostering technological innovation to enhance efficiency. In Mali, the financial sector, which is dominated by the banking sector, has played an increasing role in economic development, as evidenced by the increase of the ratio of broad money to GDP from less than 3 percent in 1970 to 15.6 percent in 1980, and further to 22.6 percent in 1998. Compared, however, with neighboring and other developing countries, Mali still has a long way to go in developing its financial sectors.

39. Since the entry of Mali into the West African Monetary Union (WAMU) on June 1, 1984, its financial sector operates within the regional CFA franc zone framework. In the late 1980s, the financial sector, in particular the banking system, faced a major liquidity and solvency crisis characterized by a high level of nonperforming loans. The banking crisis mainly stemmed from poor management, government involvement leading to poor lending decision, low interest rates, and a heavy exposure to inefficient public enterprises, which were unable to service their obligations to the banking system. In response to the crisis, the government, supported by the World Bank and other donors, adopted in 1988 a Public Enterprise Sector Adjustment Program (PESAP), with a view to decreasing the burden of the public enterprise sector on Mali’s economy and public finances by reducing its scope and improving its financial performance. Following the implementation of reforms, which led to the restructuring, privatization, or liquidation of almost all state-owned banks and the strengthening of the supervisory institution and prudential regulations at the regional level, the banking system is now somewhat healthier, and bank activity has become profitable again. The sector remains, however, relatively small, with a high concentration in the urban areas and limited financial services. In contrast, microfinance institutions have developed rapidly. This paper provides a summary of the major features of the Malian banking sector and the microfinance institutions.8

B. The Banking Sector

40. In 1998, the banking sector in Mali was composed of nine banks and two financial institutions.9 The government has a majority share in three banks and a minority share of at least 20 percent in three other banks. The remaining three banks are privately owned. Details relating to the size, structure and ownership of Mali’s banks are provided in Statistical Appendix Table 26.

41. The banking sector played a relatively important role in supporting Mali’s economic development, as evidenced by the increasing monetization of the economy. The ratio of financial savings to GDP increased from 5.4 percent in 1980 to 14.4 percent in 1998, and the stock of money grew from 15.6 percent of GDP to 22.6 percent during the same period (Table 2).

Table 2.

Mali: Key Indicators of Financial Intermediation, 1980–1998

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Source: Data provided by the BCEAO; and Fund staff estimates.

42. Despite the deepening of the financial sector, financial intermediation is still underdeveloped, and bank services are concentrated in the urban areas, as indicated in Table 3.

Table 3.

Mali: Geographic Distribution of Bank Network, June 1998

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Source: Groupe de Réflexion sur le Système Financier au Mali (GRSF); Rapport sur le Système Bancaire, Septembre 1998.

Financial reform

43. Against the background of the continuing deterioration of the banking system in late 1980s, the government implemented reform measures aimed at restoring the financial viability of banks through recapitalization; improving their management; and strengthening the collection of nonperforming loans. At the same time, at the regional level, reforms were undertaken to liberalize monetary policy, notably moving from direct instruments to indirect instruments for monetary control, and to enhance prudential ratios and bank supervision. A number of prudential regulations were introduced in 1991, including the setting of the following ratios: a minimum risk-weighted capital ratio of 4 percent; a ratio of long-term bank resources to long-term credits (medium- and long-term maturity matching) of 75 percent; a minimum liquidity ratio of 60 percent; a ratio of loans and commitments to a single borrower to a bank’s capital base of 100 percent; and a portfolio structure ratio that requires 60 percent of bank credit to enterprises to be rated by the central bank as financially sound. Commercial banks and other financial institutions must seek a creditworthiness rating (accords de classement) from the central bank after extending loans to borrowers to which they have exposures in excess of CFAF 200 million.10

44. Almost all the state-owned banks were restructured. In particular, the Banque de Développement du Mali (BDM), the bank with the most capital and deposits and the largest number of branches, was restructured in 1988–89, in response to the financial difficulties in the public enterprise sector in the 1980s, weak management and banking practices, mounting defaults by private borrowers, and the inability to recover the collateral of defaulting loans, which by mid-1987, had caused 75 percent of the BDM’s total credit to be classified as nonperforming. The restructuring involved the streamlining and modernization of its operations, the opening of its equity to private shareholders, and the hiring of foreign management. At the same time, a financial restructuring of the BDM, involving CFAF 62.5 billion of nonperforming loans, was carried out with the support of the World Bank and other cofinanciers under the PESAP, the French Caisse Centrale de Coopération Economique (CCCE), the Malian government, and the Central Bank of West African State (BCEAO). As a result of the restructuring, the BDM-SA was established in June 1989 as a mixed capital company in which the government holds 20 percent of the shares. Since then, the BDM-SA has resumed normal activity and improved its financial situation. Its deposits increased by almost 40 percent to reach CFAF 74.2 billion in 1997.

45. The Banque Internationale pour le Mali (BIM-SA) is the second-largest bank in Mali in terms of lending activity. Previously owned by the Banque Internationale pour l’ Afrique de l’Ouest (BIAO), the BIM-SA was established following the bankruptcy of the Meridien-BIAO in 1995. The government assumed the shares of the Meridien-BIAO, and presently holds 61.5 percent of the shares of the BIM-SA, with private Malians holding the remaining 38.5 percent. Under the ongoing restructuring program, the government intends to withdraw completely from the BIM-SA and open the bank to foreign participation in its capital (49 percent) and management in order to improve its banking practices. The private Malian sector is programmed to increase its share to 51 percent. The bank’s deposits amounted to CFAF 68.4 billion in 1997.

46. The Banque Nationale de Développement Agricole (BNDA) was established in 1981, with a view to improving the quality of financial services and their access to rural development agencies and individual farmers. The BNDA has expanded significantly over the past years, with an increased participation in its capital by the French CCCE and the German foreign aid agency, DEG (Deutsche Investitions and Entwicklungsgesellschaft). The BNDA’s financial situation is relatively sound, and its total deposits increased by 86.7 percent to CFAF 24.5 billion in 1997, confirming the bank’s third-place position in the Malian banking system.

47. The Banque de l’Habitat du Mali (BHM-SA) was established in 1996 from the Société des Chèques Postaux et de la Caisse d’Epargne, which took over the operations of the insolvent postal checking system in 1995, The reform was implemented with financing from the World Bank and the CCCE, with a view to restoring the liquidity of CFAF 4.3 million of nongovernment deposits that, except for the purpose of settling payments to the treasury, could not be accessed. Since then, the activity of the bank has expanded, and its deposits almost doubled between 1996 and 1997. The capital base of the BHM-SA was increased from CFAF 1.3 billion in 1996 to CFAF 4 billion in 1998, with the Malian private sector obtaining the majority. Owing to the broad network it inherited from the postal system, the BHM-SA is playing a major role in Mali’s payments system.

48. The Banque Malienne de Crédit et de Dépots (BMCD) was established in 1961, with a capital of CFAF 1 billion (51 percent held by the government and 49 percent by the Crédit Lyonnais). The bank suffered from capital inadequacy and experienced management problems that culminated in the withdrawal of the Crédit Lyonnais in 1995. Subsequently, the government became the sole owner of the BMCD; steps are being taken to attract a foreign partner of good standing in the context of opening up its capital to the private sector. The BMCD held deposits of CFAF 33.9 billion in 1997.

49. As a result of the implementation of the reform measures, the financial position of the banking system has significantly improved, and most of the banks have resumed normal activity and profitability. Despite these improvements, the overall situation remains fragile. In continued efforts to consolidate the gains obtained so far, the authorities set up, in 1997, a Groupe de Réflexion sur le Secteur Financier, which, supported by the World Bank, completed a diagnostic review of the financial sector in September 1998. A specific action plan, based on the recommendations of the Groupe de Réflexion, is being prepared to improve the institutional and judicial environment, strengthen financial intermediation, and enhance savings mobilization by diversifying financial products. At the same time, the government is implementing some measures to facilitate loan recovery procedures, including the implementation of the OHADA uniform act on collaterals and the elimination of the requirement that the Minister of Justice authorize foreclosures on mortgages.

Recent developments in bank activity

50. Between 1994 and 1997, the assets of the banking sector increased by CFAF 123.1 billion to CFAF 266.9 billion, mainly owing to a threefold expansion in gross credit to the economy. During the same period, bank resources grew from CFAF 249.8 billion to CFAF 318.4 billion through increases in deposits, lines of credit, and the bank’s own funds, in particular capital. The share of short-term credits remains large (57 percent in 1997) as banks are cautious about extending long-term credits for investment because of the paucity of bankable projects and the structure of their resources, which is characterized by a high proportion of short-term deposits (56.2 percent of total deposits in June 1998).

51. The rapid expansion in credit activity in a still fragile economic environment with a weak legal and judicial framework poses risks. The ratio of nonperforming loans to total outstanding bank credit fell, however, from 68.9 percent in 1994 to 28 percent at end-June 1998, mainly owing to more efficient recovery actions and better risk assessment in extending new credits (Table 4). The still high level of nonperforming loans is partly due to the carryover by the BDM-SA of a stock of bad loans from the liquidated bank (BDM) amounting to about CFAF 13 billion in 1997, or 20.7 percent of the stock of nonperforming loans. Provisions made by the banks amounted to CFAF 39.6 billion in 1997, representing 63.0 percent of the nonperforming loans. At end-June, 1998, the average provision ratio was about 66 percent.

Table 4.

Mali: Banking System Performance, 1994–97

(In billions of CFA francs; unless otherwise indicated)

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Source: Data provided by the BCEAO.

Data at end-September.

Fifteen months of operations.

52. Despite recent improvements, some banks still face difficulties in respecting some of the prudential ratios established by the Regional Banking Commission, in particular the medium- and long-term maturity matching ratios and the portfolio structure ratio. The situation regarding the observance of the prudential ratios is summarized in Table 5.

Table 5.

Mali: Prudential Regulation Situation at End-June 19981

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Sources: Data provided by the BCEAO; and Fund staff calculations.

The data cover 7 banks; two newly established banks are not reported. Situation as compared to end-1997.

In the West African Economic and Monetary Union (WAEMU), the limit on loans to a single borrower is 100 percent of own funds, compared with 25 percent according to international standards.

This ratio is specific to the WAEMU, it measures the percentage of borrowers that have been “previewed” by the BCEAO in the loan portfolio of the banks. It is set at a minimum of 60 percent.

In the WAEMU, this minimum ratio has been set at 4 percent, versus 8 percent under the Basle Core Principles.

C. Microfinance Institutions

53. Microfinance institutions act as bridges between the informal sector and the banking system. The banks have developed partnerships with these institutions and sometimes are financing their activities and providing them with training. The development of microfinance institutions has been encouraged by the reluctance of the banking system to finance small businesses operating in the informal and rural sectors, and many of them received technical and financial support from donors and nongovernmental organizations (NGOs).

54. Microfinance institutions include a variety of savings and credit institutions that are differentiated from commercial banks by size, structure, objectives, and technical and financial capacity. These have emerged in Mali since the mid-1980s to mobilize small savings and finance microprojects in the informal sector in both urban and rural areas. At present, there are 239 such institutions in Mali. Total membership is about 229,683 individuals compared with 159,654 in 1996, of which more than half are from the mutual savings institutions.

55. The major objectives of microfinance institutions are to: (i) mobilize and secure savings, and meet the credit needs of informal and small- scale operators, in particular in the rural population; (ii) provide education and training, especially in the management and economic areas, in the context of a rural-based strategy for human resources development; and (iii) support community development by increasing investment possibilities for local populations and, therefore, contribute to raising their income. Facilitating the informal sector’s access to financial services is a powerful factor in fighting poverty, which is one of the priority objectives of the Malian government.

56. The microfinance institutions in Mali can be classified in four main categories: (i) mutual savings institutions whose main activity is to mobilize savings, and, which take the form of mutual or cooperative systems; (ii) direct credit institutions, whose main activity is to provide credit to meet the needs of small borrowers, along the lines of the Grameen Bank; (iii) financial institutions, whose activities are linked to development projects; and (iv) traditional finance institutions, which include various rural associations and tontines operating as savings and rotating credit institutions.

57. The diversity of microfinance institutions and their various practices raise the problem of the appropriate definition of legal and supervision frameworks. Recently, efforts have been made to define and enforce prudential regulations to control these institutions’ operations. Other microfinance institutions that are not mutual savings institutions but collect savings or grant credit fall under the banking law (Loi Bancaire) in the West African Monetary Union (WAMU) or under specific regulations set by the Ministry of Finance.

58. Three institutions are currently involved in controlling and supervising microfinance operations in the WAMU. First, the Ministry of Finance, which approves, delivers, and withdraws the licenses of microfinance institutions, is also in charge of other operations, such as liquidation and merging, and receives information related to the financial activities of these institutions. Second, the BCEAO is mainly in charge of the control and surveillance of umbrella organizations of microfinance institutions. Also, in cooperation with the Regional Banking Commission, the BCEAO defines prudential ratios, assesses requests for licenses and controls the financial operations. To carry out these activities, the BCEAO has set up two projects with foreign technical and financial assistance: the Projet d’Appui à la Règlementation des Mutuelles d’Epargne et de Crédit dans l’UMOA (PARMEC-UMOA) and the Projet d’Appui aux Structures Mutualistes ou Cooperatives d’Epargne et de Crédit (PASMEC). Third, the Regional Banking Commission of the WAMU conducts surveillance operations and proposes disciplinary sanctions when microfinance institutions do not observe regulations.

59. Microfinance institution activity has grown rapidly. Between 1996 and 1997, savings collected by these institutions increased by 30 percent from CFAF 5 billion to CFAF 6.5 billion (US$11.1 million). Lending operations amounted to CFAF 9.5 billion (US$16.3 million) at end-1997. The gap in resources was financed by borrowing from the banking sector and external resources. The average loan amount per client is about CFAF 36,000. The credit granted by the microfinance institutions mainly finances the needs of rural or semirural sectors (agriculture, handicrafts, etc.), with a strong preference shown for low-income groups. Some microfinance institutions tend to target specific entities or groups, such as women. Interest rates vary between 3 percent and 72 percent for short-term credits, depending on the amount of the credit and its maturity, as well as on commitment mechanisms such as “solidarity clauses” between participants in savings and credit schemes. For medium-term credits, the interest rates are about 12 percent, broadly in line with the lending rates of the banking sector.

60. The overall performance of microfinance institutions is satisfactory, with a credit recovery rate between 81 percent and 99 percent. This result could be linked to their close knowledge of the members and the environment, and the quick disbursement conditions. The clientele of these institutions represented 1.6 percent of the Malian population in 1996 (159,654 members); total credits granted (CFAF 5.8 billion) and savings collected (CFAF 5.0 billion) represented respectively 0.43 percent and 0.37 percent of GDP in that year. Microfinance institution credits were equivalent to 3.4 percent of all private sector credits granted by the formal banking system during 1996, while microfinance institution savings accounted for 2.1 percent of deposits in the banking system. The microfinance institutions remain small, but their growth is encouraging. However, the structure of these institutions remains fragile, and they are experiencing some difficulties owing to a shortage of medium-and long-term resources and a lack of banking skills. As the rapid expansion of the microfinance institutions without the required legal, institutional, and supervisory systems could further undermine this situation, the government intends to assist their further expansion on the basis of an action plan for microfinance development, prepared with external technical and financial assistance.


Table 6.

Mali: Gross Domestic Product at Constant 1987 Prices, 1993–981

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

Data may not add up because of rounding.

Includes cotton, groundnuts, tobacco, fruits, vegetables, and others. Cotton accounted for approximately 85 percent of the total over the period 1993–98.

Annual percentage change.

In billions of CFA francs.

Table 7.

Mali: Origin and Use of Resources, 1993–98 1

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

Data may not add up because of rounding.

Table 8.

Mali: Agricultural Production, and Average Producer Prices, 1992/93–1997/98 1

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

The crop year is April/March. The marketing year is November/October.

Except for cotton, the marketting of agricultural products by official agencies was discontinued in

Actual price for first quality cotton, including rebate based on profit of CMDT.

Table 9.

Mali: Cereals—Cultivated Area and Rainfall, 1992/93–1996/97

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

Deviation in percent from the annual average of the 1960–90 period.

The rainfall is measured for the specific area where each cereal is grown.

Table 10.

Mali: Quarterly Retail Prices for Cereals, 1991–98 1

(In CFA francs per kilogram)

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Source: Data provided by the Malian authorities.

Free market prices represent the average of prices prevailing in the 13 markets of Bamako


Table 11.

Mali: Office du Niger: Indicators of Activity, 1992/93–1996/97

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Source: Data provided by the Malian authorities.

The marketing of rice by the Office du Niger has stopped since the 1993/94 crop year, following the reform of the institution.

Table 12.

Mali: Implementation of the Public Investment Program, 1992–971

(In billions of CFA francs)

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Source: Data provided by the Malian authorities.

Data may not add up because of rounding.

Table 13.

Mali: The 1995–98 Investment Budget, and Existing Commitments for Public Investment, 1998–2000,12

(In billions of CFA francs)

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Source: Data provided by the Malian authorities.

Data differ from those included in tables on Government Financial Operations, as an implementation rate of less than 100 percent is assumed in the projections.

Data may not add up because of rounding.