Mauritania
Recent Economic Developments
Author: International Monetary Fund
Publication Date:
21 Apr 1999
eISBN:
9781451827453
Language:
English
Keywords:
ISCR; CR; GDP; public enterprise; proceeds; export; market
Download PDF (17.5 MB)

This paper reviews economic developments in Mauritania during 1996–99. Mauritania continued its ambitious program of economic reforms in 1995–97. The government exercised firm control over public expenditures and ran a fiscal surplus in both 1996 and 1997. The decline in broad money in 1995–96 was reversed in 1997, reflecting increased confidence in ouguiya-denominated assets, in part owing to the implementation of financial market reforms. These policies and reforms resulted in sustained GDP growth, which averaged 4.6 percent annually over 1995–97, that is, 1.8 percent in real per capita income growth.

Abstract

This paper reviews economic developments in Mauritania during 1996–99. Mauritania continued its ambitious program of economic reforms in 1995–97. The government exercised firm control over public expenditures and ran a fiscal surplus in both 1996 and 1997. The decline in broad money in 1995–96 was reversed in 1997, reflecting increased confidence in ouguiya-denominated assets, in part owing to the implementation of financial market reforms. These policies and reforms resulted in sustained GDP growth, which averaged 4.6 percent annually over 1995–97, that is, 1.8 percent in real per capita income growth.

I. Introduction and Summary

1. Mauritania, with a land area of approximately 1 million square kilometers, is physically one of the largest countries in Africa, but most of its land is classified as desert. The population of Mauritania was traditionally nomadic, with the exception of the segment living along the Senegal river valley. However, today it is overwhelmingly sedentary, as much of the nomads migrated to cities, particularly since the severe droughts of the late 1970s. In 1998, it was estimated that almost half of the population of 2.5 million lived in urban areas, primarily in the capital city Nouakchott. Average annual population growth is estimated at 2.9 percent which, until the early 1990s, was greater than real GDP growth.

2. The economy remains dualistic, with highly capital-intensive activities such as mining, industrial fishing, and irrigated agriculture contrasting sharply with the traditional subsistence sector centered around livestock and artisanal fishing. While real GDP per capita has grown in ouguiya terms over the 1990s, it remains somewhat lower than the average for sub-Saharan African countries. The export base is particularly narrow, with two products, iron ore and fish, accounting for almost all exports. Mauritania is heavily reliant on these proceeds since many basic consumption commodities and essential intermediate inputs are imported, and the economy is highly vulnerable to external shocks, as evidenced by the crises which have affected the fisheries sector in the 1990s. Moreover, Mauritania’s total external public debt is very high, exceeding 200 percent of GDP at end-1997.

3. Supported by a three-year ESAF arrangement, IDA operations, and significant financial and technical assistance from other donors, Mauritania continued its ambitious program of economic reforms over the period 1995–97. This aimed at further consolidating the progress achieved since 1992 toward stabilization and liberalization of the economy, increasing private sector involvement in economic activity, and strengthening market-based institutions. Steps were taken to liberalize and simplify the trade regime and the foreign exchange system. Important public services, such as customs administration and tax collection, were strengthened and their administrative procedures simplified. Despite this progress, further reform is required in many areas of the Mauritanian economy. Some financial markets, particularly the foreign exchange market, continued to exhibit functional deficiencies. Some markets in the real sector remained characterized by limited competition. A limited amount of economic diversification took place, in part due to inadequacies in the legal and regulatory framework supporting private investment. The state’s involvement in economic activity remained high, with the government retaining control over the largest public enterprises. In addition, substantial distortions in the tax system and external tariff persisted through most of the period under review.

4. The government exercised firm control over public expenditures and ran a fiscal surplus in both 1996 and 1997. The decline in broad money in 1995–96 was reversed in 1997, reflecting increased confidence in ouguiya-denominated assets, in part due to the implementation of financial market reforms. To guard against the above-mentioned external vulnerabilities, the central bank was able over the 1995–97 period to significantly increase official reserves from the equivalent of 1.8 to 4.5 months of imports of goods and nonfactor services at the end of 1997. This was partly the result of significantly increased receipts from the new fisheries agreement with the European Union (EU) signed in 1996.

5. These policies and reforms resulted in sustained GDP growth, which averaged 4.6 percent annually over 1995–97, i.e., 1.8 percent in real per capita income growth, and contained inflation to an average of 5.2 percent over the same period. Although major social sector challenges remain, increased expenditures in the areas of poverty alleviation, and primary health care and education led to an improvement in several social sector indicators. Notably, the proportion of the population below the poverty line declined as did infant mortality, while gross primary enrollment for both males and females increased from 48 percent in 1990 to 86 percent in 1996.

6. This paper provides background information to the 1998 Article IV staff report. Developments in the real sector are discussed in Section II. This is followed by a discussion of fiscal developments in Section III, of the monetary and financial sector in Section IV, and of the external sector in Section V. The appendices contain, respectively, charts of key economic indicators, the statistical tables, a list of public enterprises, and a summary of the tax system.

II. Real Sector

A. Overall developments

7. Over the three years from 1995 to 1997, real GDP grew on average by 4.7 percent annually (Table 4). With a population growth rate estimated at 2.9 percent per year, this entailed an annual growth rate in per capita income of 1.8 percent.1 Nevertheless, the sharp fluctuations in sectoral output, particularly in fishing and agriculture, which have characterized the Mauritanian economy in the past, remained. The ability of the economy to maintain relatively steady growth during this period is in part due to the fact that shocks in these sectors never coincided. For example, the impact of the drought in 1996–97, which caused agricultural output to fall by 44.8 percent, was mitigated by a strong performance in the fisheries sector in 1996. Similarly, the sharp decline in the total fish catch in 1997 was partially offset by higher agricultural output. The growth of GDP over the period was primarily driven by growth in domestic activities such as transport and communications (Table 5).

8. On the expenditure side, the investment to GDP ratio increased from 14.5 percent in 1994 to 17.5 percent in 1997 (Table 7). Consumption, which averaged 92.2 percent of GDP over the three years, is estimated to have remained fairly constant. Both imports and exports of goods and nonfactor services increased sharply in 1995 to 59.3 percent of GDP and 50.5 percent of GDP, respectively, from 45.6 and 42.1, respectively, in 1994. Thereafter, they both declined steadily to 48.6 percent of GDP and 38.6 percent of GDP, respectively, in 1997. As a result, net exports of goods and nonfactor services remained fairly constant as a share of GDP, averaging –9.7 percent. The decline in the export to GDP ratio was due to lower growth of iron-ore production after the step increase in 1994–95, as well as to the decline in fisheries sector output in 1997. After being positive in 1994, the savings-investment balance became negative again in 1995. However, the difference fell steadily over the period from 5.4 percent of GDP in 1995 to 0.1 percent of GDP in 1997. This reflected the increase in net official transfers from 9.4 percent of GDP in 1994 to 13.6 percent of GDP in 1997 due to the 1996 fishing agreement with the EU (below). National savings also increased over the period from 15.2 percent of GDP in 1994 to 17.4 percent of GDP in 1997. The government became a net saver in 1995, and its savings increased from 3 percent of GDP in that year to 8 percent of GDP in 1997.

B. Sectoral Developments

9. The structure of Mauritania’s real GDP did not change significantly over the three-year period (Table 5). The primary sector, which consists of agriculture, livestock breeding, and artisanal fishing, accounted for about 20.6 percent of GDP in 1994 and 20.8 percent of GDP in 1997. The secondary sector, comprised of mining, manufacturing and handicrafts, and construction and public works, declined slightly as a percentage of GDP from 28.5 percent in 1994 to 26.7 percent in 1997. The tertiary sector grew slightly from 41.5 percent of GDP in 1994 to 43.8 percent of GDP in 1997. The commerce, transport, and communications sectors accounted for most of this growth, their share of GDP having grown over the period by 1.2 percent and 1.7 percent, respectively. By 1997, public administration was no longer the largest component of the tertiary sector, having declined by 0.9 percent of GDP over the period 1994–97 to 14.8 percent of GDP.

Agriculture and livestock

Agriculture

10. Only a very small portion of Mauritania is arable land. Less than 0.1 percent of the total surface area is under cultivation at any given time, although the area available for livestock breeding is somewhat larger. Crop farming is concentrated along the Senegal River valley. Predominant are the traditional dryland crops of millet and sorghum, which on average accounted for 90 percent of the total area of cereals under cultivation (Table 8). These crops rely on seasonal rains for water, while other crops such as rice and maize are grown mainly under irrigation.

11. A natural hindrance to agricultural development has been the recurrence of droughts. In the last five years there have been two droughts, one in the 1992/93 agricultural season2 and the other in the 1996/97 season, both resulting in sharp falls in the production of millet and sorghum (Table 8). In the three intervening seasons, however, rainfall was abundant, resulting in high levels of production of these crops, and increases in the total acreage under cultivation. By contrast, irrigated rice production was less volatile over the period. A second hindrance to agricultural development, which has slowed attempts to diversify the crops grown in Mauritania, has been the lack of adequate transportation facilities.

12. Over the 1995–97 period, the Mauritanian government continued to reduce its involvement in the determination of agricultural prices. By end-1997, virtually all price controls had been eliminated. The activities of two main public agencies that were charged with the marketing and distribution of foodstuffs, SONIMEX and CSA, were further streamlined.3 4

13. As of end-1997, several problems remained in this sector. The drought in 1996–97 accelerated the rate of abandonment of land cultivation among those farmers with small land holdings, as evidenced by the drop in the area under cultivation in that agricultural season. In addition, in order to encourage rice production, the government continued to maintain a high degree of external protection of this activity, whereby the highest tariff rate was applied to imported rice.5 Moreover, the wholesale price for domestic rice was set through an informal agreement among market participants. This resulted in an inefficient allocation of resources toward domestic rice production which, inter alia, contributed to the lack of greater crop diversification.

14. The current strategy of the government is to curb the rate of abandonment of land cultivation by smallholder farmers, and thereby reduce urban migration, by raising agricultural productivity. Through its Integrated Development Programme for Irrigated Agriculture (PDIAIM), expected to be financed by an IDA loan of about US$19 million, the government hopes to increase agricultural value added and rural incomes by an average of 7 percent annually when the program becomes fully operational from 2001. To attain the envisaged growth rate, the program plans to: (i) increase the area under irrigation; (ii) diversify the production base into more valuable and potentially exportable crops like fruits and vegetables; (iii) improve the linkages with livestock production through the use of agricultural byproducts such as animal feed; (iv) increase the availability of credit facilities beyond rice production; and (v) improve the delivery of extension services to farmers.

Livestock

15. Given Mauritania’s nomadic heritage, livestock production remains an important source of income and employment. It is estimated to account for about 16 percent of GDP, although the data available for this sector are limited.6 All three of the main herds—cattle, sheep and goats, and camels—are estimated to have grown over the three years, particularly cattle (Table 11). Potential for development of the sector remains, for example through increased milk and meat production. To encourage further development the government, within the context of the PDIAIM, is taking steps to: (i) increase the delivery of veterinary services; (ii) encourage rational use of grazing lands and watering holes; and (iii) develop forward and backward linkages with the rest of the economy.

Fishing

16. Fishing grounds are one of Mauritania’s richest resources. On average over 1995–97, fishing accounted for about 14 percent of GDP and over 50 percent of total exports.7 The declared catch averaged 460 thousand metric tons over the three years, while exports of fish averaged 210 thousand metric tons (Table 12). Although pelagic fish on average accounted for 73 percent of the total tonnage offish exports, cephalopods were the most important export in terms of value, having accounted for 58 percent of the value offish exports on average in each of the three years (Table 13).8 There are two types of operators in the sector, artisanal and industrial, with the latter having accounted for 96 percent of the total declared catch (in tonnage) on average over 1995–97.

17. Mauritania experienced a fisheries crisis in 1994 with output in the sector dropping dramatically. The reported catch fell by 36 percent in volume and exports offish were down 37 percent in volume from the previous year. In response to the crisis, from 1995 to 1997, the government adopted many reforms in an effort to manage this resource in a more efficient and sustainable manner. The reforms included: (i) the introduction in 1996 of an annual two-month ban (September–October) on most fishing activities;9 (ii) a reform in the taxation of the sector (Section III); (iii) a reduction in the government’s involvement in the marketing of the sector’s output;10 (iv) the strengthening of the Centre National de Recherche Océanographique et de Pêche (CNROP) research activities; and (v) efforts to better enforce regulation and monitor effective fishing activities.11 Perhaps the most important reform, however, was the decision to open deep-sea fishing to foreign operators through the signing of an agreement with the EU in November 1995.12 In 1996, the government signed a new five-year fishing agreement with the EU in which the license fee component was substantially increased to an average of about ECU 53.4 million annually.13

18. Though initial results were encouraging, the sector was hit by another crisis in 1997–98. Following increases in the tonnage offish both caught and exported in 1995 and 1996, the sector experienced another crisis in 1997. Again, the volumes of fish caught and exported dropped dramatically, this time by 30 percent and 46 percent, respectively. Moreover, the economic consequences of the 1997 fall were compounded in 1998 by a fall in international prices for some species, particularly high-valued cephalopods, due in part to a fall in Asian demand.

19. While climatic or biological factors may have had a role in the drop in catches in 1997–98, there was a strong concern that this crisis was primarily due to overfishing, with the latter partially resulting from the lack of sustained implementation of some of the reforms. In particular, the CNROP was not given adequate financial support, forcing it to suspend its research program. As a result, the number of licenses issued over the 1995–97 period bore little relation to the size of the fish stock. To curtail overfishing, the government froze in late 1997 the number of licenses issued. Similarly, funding of the directorate of the ministry of the fisheries in charge of monitoring fishing activities and control vessels was insufficient. However, there were instances where controls on the number of fishing vessels were not enforced, again largely due to a shortage of resources.

20. In the wake of the 1997 crisis, the government reviewed its sectoral policy and convened a round table conference with major donors in June 1998. The meeting endorsed an emergency action plan with the following main objectives: (i) to deepen knowledge of available resources through a major increase in research efforts; (ii) to reinforce the surveillance and prevention of illegal fishing; and (iii) to protect the marine environment. To these ends, in 1998 the government increased the amount of financial resources made available to the CNROP which enabled it to resume its research activities. New boats and radar equipment were acquired in order to improve surveillance. From June 1998, donors meet on a quarterly basis with the Mauritanian authorities to monitor activities in this sector.

Mining

21. The mining sector in Mauritania remains dominated by iron ore mining, which is undertaken only by the state-owned corporation, Société Nationale Industrielle et Minière (SNIM).14 Over the period 1995–97, iron ore mining continued to average about 12 percent of GDP and about 50 percent of exports.15 SNIM is by far the largest nongovernment employer, employing about 4,450 people in 1997.16 Annual production rose sharply in 1994 to 11.4 million tons from 9.2 million tons in 1993 mainly on account of new production at the Mhaoudat site (Table 15). Between 1995 and 1997, production rose modestly to 11.7 million tons. However, the improvement in iron ore prices, coupled with large investments and restructuring efforts, has dramatically increased productivity and profitability. All the minimum financial requirements that were set by creditors during the period of SNIM’s financial difficulties in the late 1980s and early 1990s are expected to have been met by end-1998, and profit for that year is expected to be about US$30 million. As a result, it is expected that SNIM will resume dividend payments in 1999.

22. A large private investment at the inactive Akjoujt mine, scheduled to begin in 1997, was postponed indefinitely due to lack of financial backing against the background of weak metal prices (copper, gold, and cobalt) on the international market. Prospecting for new gold mines and other minerals like gypsum was quite active, and traces of alluvial diamond deposits were discovered in 1998.

Manufacturing activities

23. The manufacturing sector (including handicrafts), which represents about 10 percent of GDP, grew by 9.2 percent over the three years 1995–97. Most of the activity in this sector continues to be the processing of fish. However, much of the growth over the period was due to developments in other activities, particularly the production of electricity. In addition, SNIM invested in its subsidiaries involved in the production of: (i) iron bars for construction; (ii) plaster; and (iii) carved stone. These products began to be exported during the period; exports in the order of US$5 million could be attained.

24. Nevertheless, industrial development in Mauritania remained hampered by inadequate infrastructure, in particular an underdeveloped road network, and a lack of skilled labor. The National Commission for Investment (NCI), which approves investments under the investment code,17 approved investments totaling about UM 18.6 billion during the period 1995–96, with about 875 job creations expected. However, there is little information as to how much investment actually has taken place.

Tourism

25. According to many observers, tourism represents the most potentially dynamic sector of the economy.18 However, as of the end of 1997, only a few limited efforts had been undertaken in the sector, most notably by SNIM which, through its subsidiary SOMACERT, redeveloped several hotels and began to organize package tours of the Mauritanian desert for European tourists.19 The infrastructure to cater for tourists is still poor and therefore most of Mauritania’s tourist potential remains untapped. Nevertheless, the amount of investment in this sector that was approved by NCI in 1997 was UM 1.7 billion.

The public enterprise sector

26. In 1995, the government embarked upon an intensive restructuring program for the public enterprise sector. Over the three years 1995–97, it privatized or liquidated many of the public enterprises that were in existence in 1994. At end-1997, there were about 33 public enterprises involved in commercial activities (Appendix I). Among them, 24 were majority owned.20

27. In addition to reducing the number of public enterprises, all the major enterprises which remained under public ownership, notably SNIM, SONELEC, and OPT, were restructured following a program supported by the World Bank. The efficiency and profitability of most of the remaining public enterprises greatly improved over the three years. Despite the reduction in the number of public enterprises, total profits (Table 17) for the sector increased from UM 1,863 million in 1994 to UM 4,339 million in 1997. The improved performance is due to increased productivity as a result of significant investments undertaken by the three major public enterprises, SNIM, SONELEC, and OPT, which together contribute to about 90 percent of total value added of the sector. During the period 1995–97, annual increases in productivity averaged 18.6 percent at SONELEC, 15.3 percent at SNIM, and 20 percent at OPT. At the same time, average wage increases were kept below inflation. This improvement in the efficiency of public enterprises meant that the sector’s contribution to GDP remained roughly constant over the period 1995–97, averaging 16.8 percent of GDP. During the same period, the sector employed about 7,580 people.

28. One public enterprise that remained in public hands over the period 1995–97 ran into major financial difficulties in 1997, Air Mauritanie, As a result of its losses, the government appointed a temporary administrator for the company in May 1998; he is responsible for improving the company’s operations and balance sheet in preparation for its privatization. In 1998 the administrator implemented several measures including: (i) the return of the two aircraft purchased in 1996 to their manufacturer;21 (ii) a reduction in the number of employees and the wage bill by about 30 percent by end-October 1998, and (iii) an increase in domestic and international fares of about 23 percent and 20 percent, respectively.

C. Prices, Wages, and Employment

Prices

29. By 1997, virtually all consumer and producer prices had been liberalized under successive adjustment programs. The only controlled prices which remained were: (i) utility prices (water, electricity, and telecommunications); (ii) airline prices; and (iii) petroleum prices. Regarding the latter, the government introduced a new pricing policy in September 1998, in which the government-set pricing schedule would be updated on a monthly basis. Domestic prices will therefore respond more quickly to developments in international prices and to changes in the exchange rate.

30. According to the official consumer price index (CPI), which is calculated only for low- income households in the capital city, inflation has shown a downward trend between 1995 and 1997, moving from 6.5 percent to 4.5 percent (Table 26). Preliminary data show that inflation picked up in 1998 reflecting, in part, the pass-through effects of the depreciation of the ouguiya in both 1997 and 1998, and the one-off increase in the prices of some imported goods owing to the strengthening of customs administration (below). As of end- September 1998, the 12-month average inflation rate was 7.1 percent. However, the current CPI probably underestimates the inflation rate because of various technical and methodological difficulties.22

Wages

31. The minimum wage for industry and agriculture is determined by the government, while wage rates in public enterprises and the formal private sector are set through collective bargaining. The statutory minimum wage has remained unchanged at UM 42.83/hour since 1993. However, the government increased the lowest salaries by up to 15 percent within the context of the 1998 budget law,23 the first such increase since 1992 (Table 27). Given the leading role played by government salaries, public enterprises and the formal private sector and trade unions agreed at end-August 1998 to an increase of up to 15 percent for low salaries.24

Employment

32. There are no formal employment statistics published regularly in Mauritania. However, according to a recent study25 based on a survey conducted in 1995, the unemployment rate was estimated at 26 percent of an active population of 678,000. The unemployment rate varies according to gender (36 percent of women are unemployed against 22 percent among men) and according to geographical location (32 percent in urban areas, 24 percent in rural areas with sedentary agriculture, and 15 percent among nomadic pastoralists). The situation is particularly critical in the fast growing cities of Nouakchott and Nouadhibou, whose active population is growing at rates of 7.8 percent and 8.8 percent, respectively.

33. It is estimated that in order to maintain the unemployment rate at 1995 levels, the economy needs to generate about 16,300 jobs per year on average up to the year 2000. Partial evidence shows that the number of jobs created per year is less than 10,000, and this is mainly in the informal sector.

III. Government Finance

A. Structure of the Nonfinancial Public Sector

34. The nonfinancial public sector in Mauritania consists of the central government, decentralized agencies, local governments and a number of nonfinancial public enterprises. The central government includes the Presidency, the National Assembly, the Senate, the Islamic Council, the Constitutional Council, the General Accounting Office, the Supreme Court, 18 ministries and four State Secretaries. In addition, there are a number of administrative government agencies which deal with economic and social activities and which have their own budgets.26 Local governments include 208 municipalities, for which no aggregate financial information is available. Also included are public enterprises, which accounted for about 17.5 percent of total value added in 1997 (Section II and Table 17).

35. In this report, the consolidated financial operations of the government refer to the central government budget and extrabudgetary operations. The central government budget has two components: the general budget and the special accounts. The general budget provides for both current operations and the share of capital operations that are directly financed by the Treasury. The special accounts are extrabudgetary accounts created by law or executive order in which earmarked receipts are recorded for the purpose of financing specific expenditures. In 1997 there were 24 special accounts, with one of them, the Development Support Fund (FSD), accounting for 23 percent of their total revenue. The special accounts represented less than 1 percent of total government revenue in 1997.

36. Extrabudgetary operations consist mainly of investment and restructuring expenditures that are financed by external loans and grants and that are not recorded in the treasury accounts. These operations may take place either abroad, with lenders and donors paying suppliers and Mauritania receiving imported goods, or domestically through an account at the central bank.

37. The budget preparation and execution is split up between the Ministry of Finance and the Ministry of Economic Affairs and Development, the former being responsible for the current budget and the special accounts, and the latter for the investment budget.27 Mauritania’s budget year coincides with the calendar year. The complementary period ends in mid-January of the following year. Revenues are recorded on a cash or check deposit basis, while expenditures are on a payment order basis, with the exception of interest payments on external debt and foreign financed capital expenditure (below), which are recorded on a commitment basis.

B. Overview of Budgetary Trends

38. The budget policies that were followed over the period 1995–97 were formulated in the context of the 1995 Policy Framework Paper.28 Their aim was to consolidate macroeconomic stability, while enhancing private sector-led growth and reducing poverty. To this end, the government’s objectives were: (i) to balance its budget over the 1995–97 period through the stabilization of total revenue at about 26 percent of GDP and the reduction of expenditure to about the same level; and (ii) to increase expenditure in basic infrastructure and social sectors.

39. Overall, fiscal developments recorded an even stronger consolidation, with the fiscal balance shifting from a deficit of 4.5 percent of GDP in 1994 to a surplus of 5.6 percent of GDP and 4.2 percent of GDP in 1996 and 1997, respectively.29 This was the result of two main factors: (i) the surge in fish license fees since 1996 (Section II); and (ii) the authorities’ decision to sterilize a large fraction of these fees to support the exchange rate policy and contribute to the accumulation of a sizable amount of official reserves.

C. Revenue Developments

40. Government revenues in Mauritania averaged about 26.9 percent of GDP during 1995–97 (Table 1). Revenue developments were characterized by a peak, in 1996, due to the surge in fish license fees. As a result, the dependence of budgetary revenue on the fisheries sector increased from 10.4 percent in 1995 to 32 percent in 199730 and, consequently, the composition of revenue has changed in favor of nontax sources, which accounted for 40 percent of total revenue in 1997, compared with 28 percent in 1995.

Table 1.

Mauritania: Consolidated Government Revenue, 1993–97

article image
Source: Mauritanian authorities.

Total revenue for 1992-93 has been adjusted for uncashed checks.

41. Over the period 1995–97, the ratio of tax revenue to GDP averaged about 16.7 percent, which compared favorably with other African countries. However, it decreased by about one percentage point between 1994 and 1997. In addition, there was a significant shift in the relative importance of various tax categories (Table 1 and Chart 2). In 1997, revenue from taxes on goods and services accounted for 45 percent of total revenue (compared with 17 percent in 1994), and revenue from taxes on international trade accounted for 21 percent (compared with 46 percent in 1994).

CHART 1
CHART 1

MAURITANIA: REAL SECTOR DEVELOPMENTS, 1993-97

Citation: IMF Staff Country Reports 1999, 021; 10.5089/9781451827453.002.A001

Sources: Mauritanian authorities, and Fund staff estimates.1/ As a percentage of GDP.2/ In percentage.3/ Annual percentage growth.
CHART 2
CHART 2

MAURITANIA: FISCAL DEVELOPMENTS, 1993 - 97

(In percent of GDP)

Citation: IMF Staff Country Reports 1999, 021; 10.5089/9781451827453.002.A001

Sources: Mauritanian authorities, and staff estimates.1/ Including special accounts.2/ Including net lending and public enterprises restructuring operations.

42. Revenue from direct taxes decreased slightly between 1995 and 1997 to reach one-third of total tax revenue in 1997. This decline reflected a lack of compliance, particularly for the personal income tax, limited administrative capacity to enforce tax laws, and generous tax exemptions. In Mauritania, the personal income tax is designed on a schedular basis to which a global tax has been added since 1986. The system, which imposes “double taxation” of income and is highly progressive, resulted in a low level of compliance by taxpayers. In addition, generous tax exemptions were granted to numerous large public enterprises, either as part of restructuring contracts (SONELEC, OPT, PAN, PANPA), or in the context of specific tax agreements (SNIM).31 Private enterprises were also exempted or subject to lower tax rates if their activities satisfied the requirements of the investment code.

43. Taxes on domestic goods and services rose from an average of 18 percent of total tax revenue in 1992–94 to 40 percent in 1995–97. This resulted from three main factors: (i) a reform of the system of indirect taxation with the introduction in 1995 of a Value Added Tax (VAT);32 (ii) the implementation of a 10 percent tax for SNIM’s turnover in 1996; and (iii) an increase in excise tax revenue due to higher rates on petroleum products, sugar, tobacco, and cement. However, VAT receipts as a share of GDP, which were expected to increase over the period, remained almost constant at about 3 percent mainly because of difficulties in administering this tax.33

44. Following the sharp increase in 1993, due to the full-year impact of the 1992 exchange rate depreciation, international trade taxes declined by about five percentage points of GDP to 3.3 percent in 1997. This decline mainly reflected the introduction of two policy measures: (i) the change in the taxation of the fisheries sector (below); and (ii) the implementation in 1997 of the first phase of a trade reform under which the maximum combined rate was reduced from 148 percent to 35 percent (Section V). To compensate for the revenue loss stemming from the implementation of the tariff reform, several tax measures were introduced, including: (i) the broadening of the VAT base to include the statistical tax and the consumption tax; (ii) the increase/introduction of a consumption tax for several products; and (iii) the elimination of some tax exemptions.

45. In Mauritania, nontax revenue is comprised of four main categories: (i) fishing royalties and licenses; (ii) transfers of profits and dividends by public enterprises and the central bank; (iii) debt service payments by public enterprises for loans contracted by the government and onlent to public enterprises (dette rétrocédée); and (iv) revenue from the FSD.34 Nontax revenue rose from an average of 5.8 percent of GDP in 1994–95 to an average of 11.7 percent of GDP in 1996–97 reflecting the sharp increase in fishing royalties and licenses, which represented 77 percent of total nontax revenue in 1997 compared with 30 percent in 1994. This surge resulted from the opening of deep-sea fishing to European vessels (above) and a reform of the taxation of the fisheries sector. Concerning the latter measure, in September 1994 the government decided to reform the taxation of the fisheries sector over a period of three years. With the aim of discouraging nonefficient producers, the system of export taxes was replaced with a license and access rights system for industrial fishing, and by a territorial fee system for artisanal fishing.

46. Over the period, progress was made in reinforcing tax administration and collection, including an improvement in the quality of tax assessment and in the implementation of tax audits, in particular for the VAT. Similarly, customs administration was strengthened, in particular through improved accountability of civil servants and increases in staff and resources.

D. Expenditure Developments

47. Expenditures decreased steadily as a share of GDP from 24.8 percent in 1995 to 22.8 percent in 1997 (Table 2). This reduction affected both current expenditures (which fell by 1.2 percentage points of GDP), and capital expenditure, including net lending (which fell by about 1 percentage point of GDP over the same period). Within current expenditures, the shares of goods and services expenditures and of interest payments increased, while those of wages and salaries and of military expenditures declined.

Table 2.

Mauritania: Consolidated Government Expenditures, 1993–97

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Source: Mauritanian authorities.

Interest expenditures on external debt are recorded on a commitment basis.

Includes special accounts and military expenditures.

Includes unclassified expenditures and expenditures that had been disbursed using emergency procedures, which by-pass regular budget controls.

48. Although they increased at an annual average rate of about 6 percent during 1995–97, wages and salaries nevertheless decreased as a percentage of GDP from 5.3 percent in 1994 to 4.8 percent in 1997. Containment in the growth of the wage bill resulted from two main factors. First, no general wage increase was granted over the period; second, civil service recruitment was limited to the health and education sectors, which at end-1997 accounted for 67 percent of total civil servants (Table 28).

49. Outlays for subsidies and transfers declined slightly as a share of GDP due to the elimination of current transfers to public enterprises. As of 1997, these expenditures consisted of transfers to a number of EPA most of which were operating in the areas of education and training and research in the fisheries sector. Other components were transfers to local governments and current contributions to international organizations.

50. After a sharp increase in 1993, due to the exchange rate change, interest payments on total public debt averaged about 3.2 percent of GDP in 1995–97. Interest payments on external public debt accounted for 78 percent of the total interest payments in 1997 compared with 74 percent in 1995. This reflected the effect of the exchange rate depreciation, particularly in 1997, on debt service. Despite the deepening of the treasury bill market, the outstanding stock of domestic debt as a percent of GDP remained virtually constant over the period 1995–97 (10.8 percent in 1997).

51. Capital expenditure and net lending decreased by about 1 percentage point of GDP between 1995 and 1997, due to the reduction in the latter following the completion of the commercial banks’ restructuring process and an improvement in the financial position of public enterprises. Capital expenditures increased slightly from 5.1 percent of GDP in 1995 to 5.5 percent of GDP in 1997. However, the analysis of the evolution of capital expenditures is constrained by inadequate data recording. There are two main problems. First, it has been estimated that about 25 percent of the expenditures classified as capital expenditures are de facto current expenditures as they include salary payments and outlays for infrastructure maintenance.35 Second, data on capital expenditures financed with external resources are provided by the Minister of Economic Affairs and Development on a commitment basis and they systematically underestimate actual disbursements as recorded by donors and by the Central Bank of Mauritania (BCM).36 Foreign-financed capital expenditures represented at end-1997 about half of total capital expenditures, compared with about 70 percent in 1995. This reflected both the government’s strategy of increasing over time the domestic counterpart in public investment projects as well as delays in implementing investment projects and in fulfilling conditions attached to foreign financing.

52. The share of government capital expenditures in total public capital expenditures (excluding SNIM) increased from 47 percent in 1995 to 63 percent in 1997. Throughout 1995–97, public investment37 was concentrated on projects in the agricultural sector, infrastructure, education, and health, which together received more than 80 percent of public outlays. In the agricultural sector, the emphasis was on the mobilization and conservation of water resources and extension of other services to arable land. In infrastructure, the focus was on road transportation, and water and electricity supply, particularly in urban areas.

53. Data on the functional classification of expenditures are not yet available for Mauritania. However, partial information confirmed that, over the period 1995–97, military expenditures decreased by one percentage point of GDP, whereas social expenditures38 remained at about 7.5 percent of GDP, thus increasing their share in total expenditures from 30 percent in 1995 to 33 percent in 1997. In addition, as part of its antipoverty plan, in 1992 the government created the Mauritanian Agency for Public Works and Employment (AMEXTIPE), in collaboration with the World Bank and other donors. The main goal of this agency is to create employment and improve infrastructure and services in disadvantaged areas. Preliminary evidence shows that the overall impact has been encouraging. Over the period 1993–98, close to 200 projects were run, resulting in the creation of 7,000 person-years of temporary jobs.

E. Budget Financing

54. Strong fiscal consolidation, together with large foreign financing of government operations (below) resulted in a substantial fall in domestic financing. The central government moved from a debtor position vis-à-vis the banking system of UM 9.3 million (1 percent of GDP) in December 1994, to a creditor position of UM 25.4 million (15 percent of GDP) in December 1997. Nonbank domestic financing, after having increased substantially from UM 370 million in 1994 to UM 690 million in 1995, became negative, mainly reflecting the low attractiveness of ouguiya-denominated assets until late 1997.

55. Foreign financing averaged about 4.6 percent of GDP over the period 1995–97. However, it decreased from 6 percent of GDP in 1995 to 2.7 percent of GDP in 1997. This was mainly due to three factors. First, there was a limited increase in grants and loans to finance government capital expenditures, due to delays in implementing some investment projects and inadequate coordination with donors. After having increased by about 20 percent in ouguiya terms between 1995 and 1996, in 1997 foreign project financing fell back to about its 1995 level. In addition, the share of grants decreased slightly from 33 percent in 1995 to 28 percent in 1997. Second, program-related assistance fell from UM 5.6 billion in 1995 to UM 3.3 billion in 1997. Finally, the cost of debt service increased, particularly in 1997 due to the depreciation of the ouguiya.

IV. Monetary and Financial Sectors

A. Developments in the Institutional Structure of the Financial System

56. Following the 1993–94 restructuring process, the financial sector entered a period of relative stability and expansion between 1995 and mid-1998. As of mid-1998, the Mauritanian banking system was comprised of the BCM, five commercial banks, one of which (BAMIS)39 followed Islamic banking principles, and several specialized financial institutions. In 1993–94, the government withdrew almost entirely from the banking sector, with the privatization of three of the commercial banks40 and the closure of the government-owned development bank (UBD).41 As of mid-1998 only one commercial bank, Chinguitty Bank, remained publicly owned, with the Mauritanian and Libyan governments each holding a 50 percent stake (Table 36).42 43

57. In 1995, a fifth bank, the Generate de Banque Mauritanienne (GBM), was set up with capital of UM 500 million. It is entirely privately owned, and has significant foreign capital participation. La Belgolaise (a Belgian shareholder) and the International Finance Corporation (IFC) hold 30 percent and 5 percent of GBM’s capital, respectively. While some other banks were withdrawing from the fisheries sector, GBM was entering it, allocating a large share of its loan portfolio to enterprises in that sector.44

58. During the period 1995–97, three other financial institutions emerged whose activities provided credit to sectors of the economy with limited access to commercial bank financing (Box 1 provides a description of the main financial institutions that were created in the early 1990s).45 A housing bank,46 La Banque de l’Habitat de Mauritanie (BHM), started its activities at end-1997 with a capital base of UM 2 billion. Like the other commercial banks, BHM is permitted to take deposits and must observe all banking regulations. Its main objective is to facilitate the construction of a large number of housing units. It provides finance to both developers and home buyers (both must have accounts with the bank), and will lend up to 300 percent of an applicant’s downpayment, with maturities of up to 15 years.47 As of mid-1998, BHM had financed the construction of 300 housing units, 100 of which had been completed.

59. The majority of BHM’s capital is publicly owned. As of mid-1998, the central bank was its largest shareholder, with 27.5 percent of the capital,48 and a further 40 percent remained held by public enterprises.49 As of mid-1998, most of its deposits were placed by Mauritanian emigrants in Gulf countries and Europe.50 However, in order to attract further deposits from the Muslim segment of the population that has been reluctant to participate in banking activities, BHM, with technical and financial support from the Islamic Development Bank and the Arab Fund for Economic and Social Development, is designing a banking scheme that would conform to Islamic laws (Sharia).

60. In July 1996 the BCM approved the creation of L’Union Nationale des Cooperatives de Crédit à la Pêche Artisanale (UNCOPAM) out of two smaller fishing cooperatives with a combined shareholder membership of 500. Its objective is to provide lines of credit, both short- and medium-term, to small fishing enterprises for the purchase of fishing supplies and equipment. UNCOPAM is not a deposit-taking institution, and its capital base of UM 400,000 comes mainly from L’Agence Française de Développement (AFD) and from its own shareholders. As of mid-1998, it had not yet begun its lending activities.

61. L’Agence de Promotion des Caisses Populaires d’Epargne et de Crédit (PROCAPEC) is an agency that was created in 1997 in order to increase the availability of basic financial services to, and attract savings from, low and middle income Mauritanians. PROCAPEC is not a credit union itself, but rather an umbrella organization designed to foster the development of new credit unions throughout the country. In addition to providing the legal expertise needed for the creation of a new credit union, the Agency also provides training for its managers and staff, and technical assistance in areas such as accounting. Initially, the World Bank, the African Development Bank (AfDB), and the Mauritanian government were the main donors to this agency. Recently, the agency obtained additional financial support from the AfDB and the Canadian International Development Agency (CIDA) which is targeted toward particular expenditures.51 The first credit union began operating in April 1997 with 300 members. In mid-1998, four credit unions, all located in Nouakchott, were open to the public. Their capital is based on an investment of UM 5000 by each member and their combined membership totaled 900.

B. Instruments of Monetary Policy

62. With the abolition of bank-specific credit ceilings in 1996, the monetary authorities began to rely more on indirect monetary policy instruments. In particular, they began to use treasury bill auctions more actively to control bank liquidity and credit expansion. Over the period 1995–98, the government implemented several measures to deepen the treasury bill market and improve the functioning of the auctions. These measures included: (i) a progressive reduction of the minimum amount for individual bids from UM 2 million (1994) to UM 0.1 million (1998); (ii) an increase in the frequency and an improvement in the regularity of the auctions; (iii) the introduction of bills with shorter maturities (2 weeks and 4 weeks); (iv) an increase in the publicity given to the announcement of auctions and their results; and (v) improvements in the accounting methods used for treasury bills at the level of the central bank. As a result, the outstanding amount of negotiable treasury bills, which were first issued in July 1994, increased from UM 500 million at end-1994 to UM 5.7 billion at mid-1998.

63. As of mid-1998, the auctions had the following structural features. They were organized by the central bank, and were held biweekly. The exact amount of treasury bills to be auctioned was not announced and a range within which the amount would be chosen was determined by a monetary policy committee.52 The choice of range was based on factors such as the projected liquidity of banks, the amount of treasury bills maturing, and the amount of foreign exchange flowing into commercial banks over the two-week horizon. The exact amount sold was determined by the committee on the basis of the various bids and the interest rate policy of the authorities. Despite the growing importance of the primary treasury bill market, a secondary market had not yet developed, mainly due to the limited numbers of treasury bill holders, and to the rudimentary cash flow management techniques used by commercial banks. In addition, the central bank did not hold a stock of negotiable treasury bills that it could have used for monetary intervention in the secondary treasury bill market.53

64. For most of the period 1995–97, the yield on treasury bills remained fairly constant, averaging 8.1 percent in the last quarter of 1995 and 9 percent in the last quarter of 1996. However, toward the end of 1997 the rate began to increase significantly, and this trend continued through the first half of 1998. By mid-1998, the central bank was accepting bids up to 16–17 percent on treasury bills.

65. Also reflecting the increased reliance on indirect instruments, the government removed some of the restrictions on interest rates and began to use adjustments in the discount rate as a means of controlling liquidity in the banking system. In particular, in January 1995 government-set minimum rates on time deposits were eliminated and in 1996 banks were authorized to remunerate sight deposits. However, the authorities continued to set the floor on some savings rates54 and the legal ceiling on lending rates (usury rate).55 Recently, the latter ceased to be set independently of other rates, and instead was fixed at 10 percentage points above the discount rate.56 For most of the period the discount rate was changed little, and averaged 11 percent. However, in late 1997 and the first half of 1998, the rate began to be adjusted more frequently. By mid-1998, the discount rate had been raised to 18 percent.

66. As of mid-1998, there were three refinancing facilities: (i) a repurchase facility, which provided banks with refinancing through the repurchase at the discount rate of treasury bills, for a maximum of seven days;57 (ii) a discount facility for private bills of exchange;58 and (iii) a lender of last resort facility at which banks could borrow at five percentage points above the discount rate.59

67. Reserve requirements continued to play a role in the management of bank liquidity during this period despite the increase in the volume of treasury bills issued. The required reserve ratio was increased in steps from 2.5 percent in 1992 to 4.5 percent in October 1997. Reserve requirements were based on all deposits in ouguiyas taken by the banks and were not remunerated. Failure to comply with the regulation incurred penalty invest charges at five percentage points above the usury rate.60

C. Developments in Monetary Aggregates

Trends over the period 1995–97

68. Total broad money shrank by 2.7 percent over the three years. However, in 1997 it increased by 8 percent, following a four-year decline.61 Similarly, in 1997 the amount of currency in circulation increased by 14.9 percent and the currency ratio62 increased by 1.3 percent, again, in both cases, reversing four-year declines. Five other features characterized the period 1995–97. First, net foreign assets grew steadily, increasing by 92.4 percent from December 1994 to December 1997.63 This was primarily due to the accumulation of a substantial amount of foreign exchange reserves by the BCM and the reduction of foreign liabilities by commercial banks (Tables 38 and 39). Second, net domestic assets fell in each of the three years for a total decline of 48.5 percent between December 1994 and December 1997. This decline was driven almost entirely by the accumulation of government deposits with the banking system (Section III). Third, private sector credit increased over the three years by 26.3 percent. Fourth, velocity continued its upward trend throughout the period, rising from an average of 4.8 in 1994 to 6.5 in 1997. Finally, the volume of treasury bills increased steadily, growing by 30.7 percent over the three years. This explains the difference in the behavior of broad money and M3, the latter having grown by a modest 0.4 percent over the period.64

69. In 1995, concerns about inflation were raised following an unexpectedly large rise in domestic credit in the fourth quarter of 1994. As a result, the central bank tightened monetary policy, and the government maintained the restrained fiscal stance that had been adopted in 1994. Consequently, broad money fell by 5.1 percent in 1995. This decline was due to a sharp fall in domestic credit mainly driven by a fall in net credit to the government of 29 percent of the beginning-of-period money stock. In addition, the central bank maintained tight control on the growth of credit to the private sector, in part through the use of direct bank-specific credit ceilings, which as a result increased very modestly from UM 30.4 billion in 1994 to UM 31.5 billion in 1995.65 This helped the BCM to more than double its holdings of foreign exchange over the year, from UM 5.1 billion to UM 11.7 billion.

Table 3.

Mauritania: Monetary Survey, 1993–97 1/

(In millions of ouguiyas; end of period)

article image
Source: Mauritania authorities.

Excluding accounts of the development bank (UBD).

70. In 1996, broad money continued its decline, falling again by 5.1 percent over the year, despite significant increases in net foreign assets of both the central bank and the commercial banks. The increase in the BCM’s net foreign assets reflected its continued policy of increasing its foreign exchange reserves, which over the year grew by 33 percent of the December 1995 broad money stock. The increase in the commercial banks’ net foreign assets reflected a sharp decline in their foreign liabilities, which fell from UM 9.2 billion to UM 5.1 billion, due in large part to the completion of an IDA-supported debt buyback operation (Section V) (Table 39). Moreover, credit to the private sector expanded by 15 percent of the beginning of period stock of broad money, with much of the increase occurring in the fourth quarter and resulting in part in the buildup of foreign goods inventories. The fall in broad money was due to the continued decline of net domestic assets, which fell from UM 50.6 billion to UM 35.9 billion. Again, this was primarily due to the accumulation of government deposits with the BCM. The composition of money shifted in favor of deposits which grew by 2.9 percent compared with a decline of 31 percent in the amount of currency in circulation. This was part of a larger fall in reserve money over the year. Most of that decrease was due to the pronounced fall in the reserves of commercial banks held at the BCM, which fell from UM 11.5 billion in December 1995 to UM 3.7 billion in December 1996.66

71. In 1997, broad money grew by 8 percent, reflecting in part, the increased attractiveness of ouguiya-denominated assets. A substantial amount of net foreign assets was again accumulated in this year. Currency in circulation increased by 14.9 percent, and deposits also increased. Credit to the private sector went up to UM 38.4 billion from UM 35.5 billion in December 1997, reflecting in part increases in lending to the key sectors of fishing and agriculture.

Composition of credit for the period

72. Short-term credit increased over the period from UM 28.3 billion in December of 1994 to UM 31.9 billion in December of 1997 (Table 44). This was driven primarily by increases in the amount of short-term credit extended to the trade, services, and manufacturing sectors. Short-term credit to the fishing and agricultural sectors declined over the period. Nevertheless, in 1997 the fishing sector still received 26.8 percent of total short-term credit, second only to the trade sector which received 39.2 percent. Although medium-term credit has never been a large proportion of total credit in the economy, it declined even further over the period, from UM 2.2 billion to UM 860 million, reflecting the reduction of medium-term lending to all sectors except trade. Only the fishing, manufacturing, and trade sectors received long-term credit.

D. Banking Regulation and Supervision

73. With the objective of strengthening both banking regulation and the supervisory role of the central bank, a new banking law was passed (Law 95–011) in July of 1995. To this end, the law tightened regulations governing banks, for example, by specifying, for the first time, prudential ratios with which all banks must comply.67 In accordance with the banking law, the BCM can act as a lender of last resort to the banking system, promptly providing temporary support, at the penalty rate, to illiquid but solvent banks. Under the 1995 law, owners and large creditors are not protected from bankruptcy, and banks that are insolvent or cease to meet their licensing agreement are called to take corrective measures or are forced to exit in a timely manner.

74. Moreover, with technical assistance from the Monetary and Exchange Affairs Department of the Fund, the BCM took steps to strengthen its supervision of the banking system. The Bank Supervision Department periodically analyzes documents submitted by the commercial banks and performs both off-site and on-site inspections to assess the health of individual banks and ensure their compliance with banking regulations. It has the ability to punish infractions and impose corrective measures. To complement its own analysis, the BCM occasionally requests prominent external auditors to assess the adequacy of a bank’s loan valuation and provisioning. Finally, with assistance from the Banque de France, the BCM adopted internationally recognized accounting standards.

75. Despite the general improvement in the performance of the banking sector over the period 1995–96, one bank, BAMIS, continued to make losses. The report of an audit done in 1996 showed that about 80 percent of its loans were either bad or doubtful or had been restructured. Its cumulative losses to the end of 1996 amounted to UM 2.2 billion. In mid- 1997, a large share of the bank was taken over by a group of Mauritanian businessmen, and the bank adopted a corrective plan of action proposed by the BCM. By mid-1998, there were signs that BAMIS’s financial position had somewhat improved. In the first semester of 1998, its deposits had increased by UM 379 million and its credits to the economy decreased by about UM 600 million. In order to rectify its noncompliance with some prudential ratios, in July 1998 BAMIS’s shareholders agreed to increase capital by UM 500 million in order to bring total capital to UM 2.5 billion.68

76. Due to the crisis in the fisheries sector in 1997, the two banks with particularly heavy exposure to that sector, BNM and GBM, saw their financial positions deteriorate and did not meet some of the prudential requirements in the spring of 1998.69 GBM increased its capital by UM 1 billion in July 1998 which brought the bank’s total capital to UM 1.5 billion. In addition, both banks stepped up their efforts to recover nonperforming loans and by July 1998, were compliant with prudential regulations.

V. External Sector Developments

A. Balance of Payments

Background and overall developments

77. Balance of payments analysis in Mauritania is constrained by inadequate recording and compilation of data, as well as by persistent discrepancies between data derived from different national agencies and with partner country figures. Data on exports, imports, short-term capital flows, private transfers and commercial banks’ liabilities are particularly weak. These problems are reflected in sizable and highly variable unexplained capital flows and errors and omissions.70 In terms of statistical inconsistencies, data on official transfers provided by the BCM and the Ministry of Economic Affairs and Development on project grants differ regularly, and there are also discrepancies between export data reported by the central bank and that reported by customs.

78. In addition, the balance of payments data presented in the attached tables have undergone some significant revisions, including reclassification, compared with the data used for the previous Recent Economic Developments report.71 First, the principal change in classification concerns the treatment of the license fees received from the EU. In previous reports, all license fees and royalty payments were recorded as nonfactor services. However, in accordance with the fifth edition of the Balance of Payments Manual, payments for licenses, including those for fishing rights, are now treated as taxes, and classified as current transfers to general government.72 Second, program assistance (both grants and loans) is now shown as part of exceptional financing. Third, the authorities have significantly revised import data, mainly to correct for previous double counting of petroleum imports. In addition, import data is presented on a free on board (f.o.b) basis rather than a cost, insurance, freight (c.i.f) basis.

79. Overall, Mauritania’s balance of payments position improved between 1995 and 1997 with a reduction in both the current account deficit and the overall deficit, and a significant strengthening of the official reserves position (Table 45). Nevertheless, Mauritania was subject to a heavy debt burden and continued to rely on exceptional financing in the form of debt relief and balance of payments support, and on significant amounts of concessional external assistance, to meet its financing needs. While the external position consolidated somewhat, its vulnerability to external shocks was starkly demonstrated by the 1997-98 crisis in the fisheries sector (above). Limited export diversification took place over the period under discussion. Moreover, the medium-term prospects were damaged by the indefinite postponement of a major private sector mining investment which was to be entirely financed through foreign direct investment.

80. In 1995, the current account deficit (including transfers) deteriorated by almost 6 percentage points of GDP as higher imports and fisheries-related service payments outweighed significantly stronger export performance, particularly from the fisheries sector. The weakening of the overall balance was contained to 3 percent of GDP on account of higher short-term capital flows. The resulting overall deficit of SDR 31 million, was financed by a Paris Club rescheduling with comparable treatment from some non-Paris Club creditors and program assistance of SDR 28 million. This allowed the central bank to double its gross official reserves to SDR 61 million, or 1.8 months of imports of goods and services.

81. A marked improvement in the current account (including official transfers) equivalent to 3 percent of GDP was registered in 1996, due to the fisheries agreement with the EU (above). These receipts actually masked a deterioration in the current account (excluding transfers) of 2 percent of GDP, due mainly to a higher nonfactor services deficit and a small weakening in the trade balance as the stock of imported inventories continued to accumulate. Combined with a strengthening in the capital account, the overall balance of payments deficit improved from SDR 31 million to SDR 8 million. Despite a payment of SDR 8 million to commercial creditors to clear arrears that were not part of the 1996 debt buyback operation, the central bank was able to build up official reserves by SDR 42 million, which raised import cover to 2.8 months. A substantial portion of commercial arrears (SDR 61 million of principal and interest) were cleared, and debt relief of SDR 69 million was provided by bilateral creditors through the second tranche of the 1995 Paris Club rescheduling.

82. The current account deficit (including official transfers)73 declined further in 1997 to 0.1 percent of GDP despite a further weakening in the trade balance driven by a 25 percent fall in fish exports. This improvement resulted mainly from lower service payments to boats leased for pelagic fisheries and higher private transfers. The evolution of the capital account was less favorable than in 1996 on account of significantly lower “other capital” flows compared with 1996. Reflecting these developments, the overall deficit widened slightly to 1.3 percent of GDP from 1 percent in 1996. Reserve coverage increased further in 1997 to 4.5 months of imports of goods and nonfactor services.

Merchandise trade

Exports

83. Mauritania’s export base remained highly concentrated on two products—iron ore and fish—during the 1995–97 period74 (Table 46). In 1995 there was a strong increase in export receipts mainly due to a better-than-expected fish catch during the third quarter (especially of pelagic fish), and exceptionally high prices for cephalopods. A slight further improvement in export performance was recorded in 1996, due to higher prices for iron ore and cephalopods. However, the aggregates masked a further decline in cephalopod volume, which by 1996 were 46 percent below their peak of 1993. Export growth in 1996 was also constrained by the sharp fall in gold exports, which declined to close to zero following the closure of gold mining operations at Akjoujt. Export developments in 1997 were dominated by the fisheries sector crisis. Even though iron ore export proceeds increased due to a 5 percent increase in volume and a 6 percent increase in unit prices, overall exports declined by 10 percent in SDR terms (Table 45) reflecting the decline in fish exports (Section II). On a more positive note, there are signs of diversification of mineral exports.

Imports

84. Revised import data provided by the authorities show that total imports increased sharply in 1995 by 23 percent in nominal terms (Table 47). This was largely the result of increased import volume, particularly due to the accelerated implementation of the public investment program. In 1996, a further increase in imports was driven by higher private sector import demand as the stock of imported goods was built up, by higher demand for intermediate goods for the construction sector, as well as by the purchase of two replacement planes by the national airline company (Air Mauritanie). Imports declined in 1997, but this masked a continued increase in the stock of inventories, facilitated by the ability of importers to keep, until the end of the year, merchandise in customs’ warehouses for extended periods. In SDR terms, the imports of SNIM remained broadly unchanged over the 1995–97 period. One notable implication of Mauritania’s remaining exchange restrictions was the direct financing of imports abroad, i.e., importations sans réglement financier.75

Terms of trade

85. Mauritania’s terms of trade improved marginally in 1995 and 1996 but improved significantly by 9 percent in 1997 (Table 48). The latter was mainly due to an improvement of 6.9 percent in export prices (in SDR terms) on account of a 35 percent increase in the unit price offish exports and a 6 percent increase in iron ore prices. Import prices in partner countries also declined by 2.1 percent in 1997.76 Indications for the first nine months of 1998 show that lower average prices offish have eroded a significant part of these terms of trade gains.

Direction of trade

86. Direction of trade statistics for Mauritania rely on partner country data. These figures are typically significantly higher than those reported by the authorities. The main export markets continue to be to industrialized countries, particularly those of the EU. This partly reflects the fact that iron ore is solely exported to the EU. Exports of fish, particularly high value species (cephalopods), are primarily directed to Asian countries. Notably, in recent years exports have been increasing to a number of neighboring African countries (Table 49). Imports also originate mainly from industrial countries, with France accounting for one quarter of all imports, followed by Spain (8 percent) and Germany (7 percent). The share of total imports from developing countries increased between 1995 and 1997 from 24 percent to 28 percent, primarily due to a recovery in recorded trade with Senegal (Table 50).

Services

87. The services account deteriorated in 1995 mainly reflecting higher payments to foreign owners for the lease of pelagic vessels as the value of pelagic exports surged, and due to higher miscellaneous private service payments (Table 51). Lower receipts for government services, as well as a continued increase in leasing payments, contributed to a further deterioration in the services balance in 1996. In 1997, the fisheries crisis reduced the services deficit mainly due to lower payments for boat leasing and other services related to the fisheries sector. In addition, there was a large fall in other service payments, but these data should be qualified by the observation that the foreign exchange record may not fully capture services acquired through nonrepatriated earnings.

Private and public transfers

88. Data on private transfers to Mauritania are particularly weak.77 These flows largely reflect remittances from Mauritanian workers overseas. In total, net private transfers increased from SDR 20 million in 1995 to SDR 39 million in 1997, possibly in response to the liberalization of the exchange regime (Table 52). Net official transfers rose significantly from 1996 onwards reflecting, as noted above, the new fisheries agreement with the EU.

Capital account

89. The capital account improved in 1995 and 1996 before weakening in 1997.78 In 1995, despite lower project loans for SNIM’s investment program, the improvement derived from increased “other capital flows” and higher “errors and omissions.” This also accounted for the small improvement in the capital account in 1996. Higher trade credits contributed to part of the increase in these categories between 1995 and 1996. However, there was also a significant unexplained capital flows component which could have been due to one or more of the following reasons: (i) underinvoicing of exports; (ii) unrecorded worker remittances; and (iii) other capital flows using unofficial channels to benefit from the parallel market exchange rate.79 In 1997, the capital account weakened due to a reversal in recorded “other capital,” which more than offset higher project related lending associated with a significant increase in the public investment program and a shift in the mix of external project financing from grants to loans.

Exchange rate

90. Calculations based on the Fund’s Information Notice System (INS) show that the external value of ouguiya depreciated in nominal and real effective terms by 14 percent and 3.6 percent, respectively between December 1994 and December 1997 (Chart 4). Following a depreciation in the first half of 1995, there was a steady appreciation from the second quarter of 1996 as the inflation differential between Mauritania and its trading partners exceeded the rate of nominal depreciation. Most of the depreciation occurred from the second quarter of 1997 after the authorities began pursuing a more active exchange rate policy to reverse this real appreciation.80

CHART 3
CHART 3

MAURITANIA: MONEY AND CREDIT DEVELOPMENTS, 1993-97

Citation: IMF Staff Country Reports 1999, 021; 10.5089/9781451827453.002.A001

Sources: Mauritanian authorities; and Fund staff estimates.1/ Annual change in percent of broad money at the beginning of the period.2/ M1 is defined as currency in circulation plus sight deposits; M2 (broad money) is defined as M1 plus time deposits; and M3 is defined as M2 plus treasury bills held by the non-banking sector.3/ Includes UBD accounts up to 1994.
CHART 4
CHART 4

MAURITANIA: Real and Nominal Effective Exchange Rates, 1985–97

(1990=100)

Citation: IMF Staff Country Reports 1999, 021; 10.5089/9781451827453.002.A001

Source: International Monetary Fund, Information Notice System.

B. External Debt

91. Based on data reported to the World Bank’s Debtor Reporting System (DRS), Mauritania’s total external debt outstanding and disbursed averaged about SDR 1.69 billion during 1995–97, or the equivalent of 247 percent of GDP at end-1997 (Table 53).81 In terms of debt composition, there was a continued increase in the relative importance of borrowing from multilateral creditors (in particular IDA, the African Development Fund, and the IMF) with their share increasing from 40 percent of total debt in 1993 to 49 percent by end-1997 (Table 55). Outstanding debt to bilateral creditors decreased between 1995–97. In terms of the composition of debt by domestic debtors, the outstanding debt of central government increased relative to the liabilities of public enterprises as project and program borrowing to finance the Public Investment Program increased and large net repayments were made by SNIM and SONELEC (Table 56).

92. Progress in addressing Mauritania’s external debt problem has been mixed. In June 1995, Paris Club creditors agreed to reschedule eligible maturities and arrears on Naples terms.82 Several non-Paris Club creditors (including Algeria, China, the Abu Dhabi Fund, and the Kuwait Development Fund) agreed to provide relief on comparable terms. As a result, arrears on official external debt were reduced to SDR 27 million at end-December 1995 (Table 54). The Paris Club implemented the second tranche of the 1995 rescheduling in June 1996 following the settlement of overdue obligations by Mauritanian importers vis-à-vis some Paris Club creditors. However, negotiations with several non-Paris Club creditors on the rescheduling of arrears and current maturities on terms comparable to the 1995 Paris Club rescheduling remained protracted through 1996 and 1997, and arrears to these creditors increased to SDR 43 million by end-1997. Similarly, in 1997 the authorities also made efforts to normalize their relations with the Organization of Arab Petroleum Exporting Countries (OAPEC) and to clarify the status of the “passive debt,”83 but these issues also remained unresolved. As a result of deficiencies in the functioning of the exchange system (below) which were compounded by the fisheries sector crisis, sizable arrears by domestic commercial banks and importers on short-term commercial claims insured by Paris Club creditors were accumulated in 1997 and 1998.

93. Due to disputes over Mauritania’s obligations to certain foreign banks, a buyback of arrears on short-term commercial debt could not be completed in 1995. With a SDR 4.3 million grant obtained under the IDA-debt reduction facility, the buyback operation was successfully undertaken in September 1996. The buyback covered 98 percent (SDR 36 million) of eligible principal arrears which were purchased at 10 cents per dollar.84 The central bank’s share of the debt ineligible for the operation (approximately SDR 20.2 million) was cleared by end-1997.

C. Exchange and Trade System Reforms

Exchange system

94. Wide-ranging exchange system liberalization took place since the resumption of adjustment efforts in 1992. In 1992 the foreign exchange market was highly centralized. It had four dominant characteristics. First, the central bank exercised total control over the supply of foreign exchange and all foreign exchange proceeds had to be surrendered to the central bank. Second, the central bank exercised control over the expenditure of foreign currency. The majority of foreign exchange transactions were done in the noncash market—i.e., through transfers of foreign exchange and all such transfers had to go through the central bank. In addition, if the transfer was to purchase imports, a license from the government had to be obtained first.85 Third, in October 1992, a limited market for foreign currency notes and travelers checks opened. However, only commercial banks were authorized dealers. There were no restrictions on commercial banks’ purchases of foreign exchange notes and travelers checks which were acquired foreign currency from travelers and from Mauritanians working abroad.86 Fourth, from 1992 until the end of 1995, Mauritania openly ran a two-tier exchange system in which the official market (including all transfers), made by the central bank, and the cash market largely run by the commercial banks co-existed with different exchange rates. The exchange rate in the cash market was routinely reported to the central bank, and the rate typically differed by 2–4 percent from the official rate. In addition, there existed a tolerated parallel cash market in which the rate differed by as much as 20 percent from the official rate.87

95. In 1995, Mauritania undertook a unification of the two officially recognized rates. This unification was based on several reforms implemented throughout 1995 which fell under four broad categories (Box 2): (i) the removal of restrictions requiring that certain current transactions, notably purchases of foreign exchange for import purposes, be conducted exclusively at the BCM; (ii) measures to increase the supply of foreign exchange entering the commercial bank market; (iii) the liberalization of the noncash market through, for example, allowing private banks to maintain accounts with foreign correspondents; and (iv) the liberalization of the cash market through the granting of licenses to foreign exchange bureaus.

96. Several other developments coincided with the unification. First, an interbank foreign exchange market was established in December 1995.88 Second, the central bank ceased to set the exchange rate.89 The official exchange rate became a reference rate which was calculated daily as the volume-weighted average of the rates applied to bank, foreign exchange bureau, and interbank transactions that had taken place.

97. These reforms, however, ran into growing difficulties from 1996 with a deterioration in the relations between banks and foreign exchange bureaus and increased segmentation of the market. In the cash market, the number of new foreign exchange bureaus, which were allowed to deal in foreign currency notes and travelers checks, grew rapidly.90 Although some of the foreign exchange bureaus were owned and operated by commercial banks, in an effort to protect their dwindling share of that market and their control of import/distribution networks, some banks refused to transact with independent foreign exchange bureaus.91 As a result, market segmentation increased and, at times, the rates quoted by individual bureaus differed considerably from one another and from the rate quoted by banks.

98. More importantly, while de jure there was only one exchange rate at this time, de facto, foreign exchange was trading at a premium over the official rate, particularly in the cash market.92 The divergence between the official reference rate and the actual market rate was in part due to the noncompetitive behavior of some banks. Moreover, the central bank was not always prepared to satisfy the demand for foreign exchange at the official rate,93 although it still exercised considerable control over the supply of foreign exchange. As of end-1997, all export proceeds and transfers of foreign exchange still were required to be channeled through the central bank, which purchased a prescribed fraction of the total amount of foreign exchange and then released the remainder to the market.94

99. Reflecting these market deficiencies, on several occasions over this period importers and commercial banks accumulated arrears to foreign creditors because of delays they encountered in purchasing foreign exchange to settle their transactions. In addition, the above-mentioned crisis in the fisheries sector in 1997–98 exacerbated the imbalance between supply and demand for foreign exchange in the cash and noncash markets resulting in further segmentation of the market and a widening in the parallel market exchange rate premium. These tensions in the exchange market were accompanied by an accumulation of trade-related debt arrears.

100. Consequently, most of the reforms to the foreign exchange system in 1998 focused on relaxing the central bank’s tight control over the supply of foreign exchange, and changing its intervention strategy in the foreign exchange market. In January 1998, surrender requirements for nonmineral export proceeds were completely abolished. At the same time, the obligatory requirement to repatriate export proceeds through the central bank was eliminated. Following this, the surrender requirement of repatriated SNIM export proceeds was reduced from 100 percent to 85 percent from end-July, 1998.95 With effect from end-October, the period for which exporters were authorized to retain foreign exchange was lengthened from 60 days to 90 days. To complement this liberalization, the central bank also decided to significantly alter its intervention strategy in the market. Since November 1998, the BCM announces weekly an intervention rate that is determined on the basis of various indicators including market developments, reserve accumulation objectives, and competitiveness considerations, and is willing to buy and sell unlimited amounts of foreign exchange at a fixed (1 percent) spread around this intervention rate. These reforms occurred against a background of an accelerated depreciation of the nominal exchange rate from 1997 and an 11.6 percent step depreciation in July 1998.

Trade system

101. Despite earlier reforms of the import tax regime in 1982 and 1989, Mauritania’s trade regime over the first half of the 1990s was characterized by high nominal and effective protection rates,96 a multitude of tariff rates and bands, widespread exemptions, and significant nontariff barriers. With technical assistance from the Fund, the government conducted an evaluation of tariff reform in 1995. A medium-term strategy was subsequently adopted, the goals of which were to simplify the import tax system and to lower the average nominal and effective protection on competing final products while reducing the average import duty on imported inputs (particularly raw materials and intermediate/capital goods). A three-stage trade reform was announced in October 1996.97 The authorities embarked on the first phase from January 1997 under which the maximum combined import tax rate was reduced to 35 percent; the number of tariff regimes was reduced from four to three (fiscal duty, customs duty, and statistical tax); and the number of tariff rates under the fiscal duty regime was reduced was 33 to 5.98 As programmed, the second stage was implemented in January 1998 with the combined maximum tariff rate lowered from 35 percent to 30 percent through the reduction in the top fiscal duty rates by five percentage points to 22 percent.99 Export taxes remain on various categories offish exports as well as selected other exports, notably leathers and hides, arabic gum, and live animals. Since 1997, all export and import monopolies have been eliminated, with the exception of SMCP’s monopoly on the export of high value species of frozen fish.

Mauritania: Financial Institutions created 1990–93

In 1990–93, several financial institutions were created to provide financial services to specific sectors of the economy. These institutions are not permitted to take deposits and can lend only to their own respective shareholders/members. Their funding comes from shareholders and foreign institutions, of which the main contributors are the World Bank, the European Union, and the Agence Française de Développement (AFD).

1. L’Union Nationale des Coopératives Agricoles de Crédit et d’Epargne (UNCACEM) was created in 1992. UNCACEM is governed by the legislation concerning cooperatives, and must also comply with Central Bank regulations. Its purpose is to formulate rules governing the lending practices of small agricultural cooperatives, and to provide them with cash advances for operational purposes. The cooperatives make short- and medium-term loans for supplies and equipment purchase related exclusively to rice production in the Traza and Haut Fleuve areas. In 1997, the cooperatives made 310 loans, amounting to UM 651 million, of which UM 489 million were short-term loans. UNCACEM has struggled to make profits, in part due to the low recovery rate on its loans. As of the end of 1997, it had approximately UM 107 million in capital.

2. Investissement-Développement en Mauritanie (IDM) was created in 1991 with financial contributions from AFD and Société d’Investissement et de Développement (SID). Its purpose is to provide credit to small and medium-sized local private enterprises. IDM does not have any public funding. While under the auspices of the Ministry of Planning, the IDM must comply with regulations of the Central Bank of Mauritania. As of mid-1997, IDM had already committed UM 215 million to various businesses, of which UM 130 million is in the form of loan contracts, the remainder being in equity and leasing contracts.

3. L’Association pour le Crédit à la Micro et Petite Entreprise (ACMPE) was created following the bankruptcy of UBD in 1993. Originally created to provide credit to Mauritanians repatriated from Senegal, its clientele was later extended to cover young unemployed Mauritanian university graduates. Most of its financial capital, about UM 215 million, comes from the Mauritanian government. The ACMPE directs its resources towards three types of project: (i) water infrastructure projects; (ii) establishment of retail gas stations (ACMPE has financed the creation of 11 such businesses in conjunction with the national gas company SOMAGA2); and (iii) development of enterprises providing various other services ranging from sewing and carpentry to secretarial services.

4. La Caisse d’Epargne et de Crédit des Artisans (CECA), a credit union for artisans, was created in June 1993. By 1996, the organization had 550 members with total capital of about UM 6 million. The credit union offers financing to those of its members who have qualified for a loan by saving for at least three months. The average loan size is around UM 50,000.

Mauritania: Exchange System Liberalization, 1995–97

Key measures implemented by the Mauritanian authorities to liberalize the exchange system:

1995

  • From January 1, free market operations for commercial banks were broadened to include foreign exchange purchases for the payment of imports of goods and services and current private transfers.

  • A system of nonbank foreign exchange dealers was established in mid-1995.

  • The system of auctioning import authorizations was abolished in the fourth quarter and foreign exchange was to be purchased on the free market for all imports.

  • At end-1995, the surrender requirement to the central bank on nonmineral exports proceeds amounted to 30 percent. The remainder was retained by exporters who were allowed to hold up to 30 percent of their total proceeds for up to 30 days, after which any remaining foreign currency had to be exchanged. Exporters had to sell 40 percent of their proceeds to the market immediately. In addition, 100 percent of mineral proceeds were surrendered to the central bank.

  • On December 31, 1995, the authorities de jure unified the exchange rate.

1996

  • All current transactions were made in the free market.

  • An institutional framework for an interbank market in foreign exchange was established in January 1996. Banks and bureaus de change agreed to a code of conduct.

1997

  • New regulations on the net foreign exchange positions of banks were introduced in February-March, and an inspection program was launched to verify compliance. A mandatory system of maximum daily working balances for banks and bureau de change was introduced in November 1997.

  • Effective May 1997, the surrender requirement for foreign exchange proceeds was reduced to 20 percent and the retention period was lengthened from 30 to 60 days.

    The surrender requirement was further reduced at end-November 1997 from 20 percent to 10 percent.

  • The system of prior import declarations was modified in late 1997 with the transfer of this responsibility to a pre-shipment inspection company.

APPENDIX I Mauritania: List of Major Nonfinancial Public Enterprises, April 1998

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Source: Information provided by the Mauritanian authorities.

The government’s share is less than 50 percent.

Subsidiaries of SNIM.

APPENDIX II Mauritania: Summary of the Tax System, 1997

(All amounts in ouguiyas)
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Sources: General Tax Code of May 24, 1982; Investment Code; Customs Tariff; Fiduciaire France-Afrique, Fiscalité Africaine; Mémento fiscal and social de la République Islamique de Mauritanie, 1983; International Bureau of Fiscal Documentation, African Tax System, 1983: and information provided by the Mauritanian authorities.

STATISTICAL APPENDIX

Table 4.

Mauritania: Gross Domestic Product by Sector of Origin at Constant 1985 Prices, 1993–97

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Sources: Mauritanian authorities; and Fund staff estimates.
Table 5.

Mauritania: Growth of Output by Sector, 1993–97

(In percent)

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Sources: Mauritanian authorities; and Fund staff estimates.
Table 6.

Mauritania: Gross Domestic Product at Current Prices, 1993–97

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Sources: Mauritanian authorities; and Fund staff estimates.
Table 7.

Mauritania: Expenditures and Savings at Current Prices, 1993–97

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

Including public enterprises.

Determined as a residual.

Including change in stocks.

Including private transfers.

Table 8.

Mauritania: Area Cultivated and Production of Selected Crops, 1992/93–1996/97 1/

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Source: Ministry of Rural Development and the Environment (MDRE).

Crop year usually ends June 30; the main harvest takes place at the end of the first cropping season, before December 31 of each calendar year.

Excluding new spring cereal culture.

Table 9.

Mauritania: Supply of Cereals, 1993–97

(In thousands of metric tons)

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Source: Commission for Food Security (CSA).

Consumable cereal production equals gross production less estimated losses on paddy (40 percent) and other cereals (15 percent).

Table 10.

Mauritania: CSA—Operating Revenues and Expenditures, 1993–97

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Source: Commission of Food Security (CSA).