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© 2002 International Monetary Fund
December 2002
IMF Country Report No. 02/263
Islamic Republic of Mauritania: 2002 Article IV Consultation, Fifth Review Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criteria–Staff Report; Staff Statement; Public Information Notice and News Brief on the Executive Board Discussion; and Statement by the Executive Director for the Islamic Republic of Mauritania.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2002 Article IV consultation with the Islamic Republic of Mauritania, the fifth review under the Poverty Reduction and Growth Facility, and request for waiver of performance criteria, the following documents have been released and are included in this package:
the staff report for the combined 2002 Article IV consultation, the fifth review under the Poverty Reduction and Growth Facility, and request for waiver of performance criteria, prepared by a staff team of the IMF, following discussions that ended on February 12, 2002, with the officials of the Islamic Republic of Mauritania on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 6, 2002. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff statement of June 7, 2002 updating information on recent economic developments.
a Public Information Notice (PIN) and News Brief, summarizing the views of the Executive Board as expressed during its June 7, 2002, discussion of the staff report that concluded the Article IV consultation, the fifth review under the Poverty Reduction and Growth Facility, and request for waiver of performance criteria, respectively.
a statement by the Executive Director for the Islamic Republic of Mauritania.
The document(s) listed below have been or will be separately released.
Completion Point Document Under the Enhanced HEPC Initiative
Joint Staff Assessment of the Poverty Reduction Strategy Paper—Annual Progress Report
Letter of Intent sent to the IMF by the Authorities of the Islamic Republic of Mauritania*
Memorandum of Economic and Financial Policies by the Authorities of the Islamic Republic of Mauritania*
Poverty Reduction Strategy Paper—Progress Report
Selected Issues Paper
Statistical Appendix
Technical Memorandum of Understanding*
*May also be included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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Front Matter Page
INTERNATIONAL MONETARY FUND
ISLAMIC REPUBLIC OF MAURITANIA
Staff Report for the 2002 Article IV Consultation, Fifth Review Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criteria
Prepared by the Middle Eastern Department
(In consultation with other departments)
Approved by Paul Chabrier and Michael Hadjimichael
May 6, 2002
The staff team included Mr. Chami (head), Mr. Ben Ltaifa, Ms. Beidas, Mr. Camot (all MED), and Messrs. Jones and Bandiera (PDR). Mr. Youm, the Fund resident representative, assisted the mission. Mr. Dhonte participated in the final policy discussions.
The staff team met with the Governor of the Central Bank, the Minister of Finance, the Minister of Economic Affairs and Development, the Head of the Agency for Human Rights, Fight Against Poverty and Integration (CDHLCPI), as well as with other senior officials. The team also met the President of the Republic who expressed an interest in pursuing a close relationship with the Fund that goes beyond the completion point under the enhanced HPC Initiative.
In concluding the 2001 Article IV in May 2001, Executive Directors welcomed Mauritania’s first PRSP and considered it a major step toward sustainable reduction in poverty. Directors agreed to the easing of the fiscal stance to increase poverty-reducing expenditures, and stressed the need to strengthen public expenditure management. They urged the authorities to maintain a prudent monetary stance and agreed to the new approach of the central bank in enforcing credit concentration limits on a bank-by-bank basis while strengthening its supervision capacity.
The present PRGF arrangement was approved by the Board on July 21, 1999, and the PRSP was presented to the Boards of the Fund and the Bank in January 2001. The first progress report on the implementation of the PRS, completed in March 2002, describes one year of successful implementation. Mauritania expects to reach the completion point under the enhanced HIPC Initiative at the same time as the completion of this fifth review under the arrangement. The sixth review is expected to be completed before year-end, and for this the authorities are requesting a five-month extension of the PRGF arrangement. Mauritania accepted the obligations of Article VJJI, Sections 2, 3, and 4, in July 1999.
This report was put together by Saade Chami with significant contributions Nabil Ben Ltaifa, Samya Beidas, Nicolas Carnot, and Dennis Jones.
Contents
Executive Summary
I. Introduction
II. Recent Developments and Performance Under the Program
Macroeconomic Performance
Structural Reforms and Poverty Profile
III. Medium-Term Outlook
IV. The 2002 Program
Fiscal Policy and Reforms
Monetary Policy
Exchange Rate Policy
Key Structural Reforms
V. Poverty Reduction Strategy and the Completion Point
VI. Safeguards Assessment
VII. Program Financing, Monitoring, and Reporting
VIII. Staff Appraisal
Text Boxes
1. Structural Conditionality
2. 2000 Poverty Profile
3. Strengthening Public Expenditure Management
4. Poverty and Social Impact Analysis of the PRGF-Supported Program
5. Liquidity Forecasting
Figures
1. Selected Economic Indicators, 1996–2002
2. Real and Nominal Effective Exchange Rates, June 1995–December 2001
3. Consolidated Government Operations, 1995–2002
Tables
1. Status of Implementation of the Structural Performance Criteria and Benchmarks Under the PRGF-Supported Program for 2001–02
2. Quantitative Performance Criteria for 2001
3. Selected Economic and Financial Indicators, 1999–2003
4. Balance of Payments, 1999–2006
5. Consolidated Government Financial Operations, 2000–04
6. Summary Monetary Accounts, 2000–02
7. Macroeconomic Framework, 1999–2006
8. Status of Structural Measures that were Dropped Following the Streamlining of Conditionality in May 2001
9. Work Program for 2002–03
Appendices
I. Fund Relations
II. Financial Relations with the World Bank Group
III. Statistical Issues
Attachments
I. Letter of Intent and Memorandum of Economic and Financial Policies
II. Technical Memorandum of Understanding
Executive Summary
Background— Performance under the PRGF-supported program was solid in 2001, reflecting sound economic policies and greater ownership. A few days delay in the receipt of the 2001 fishing license fees from the EU caused the nonobservance of three quantitative performance criteria, larger fiscal and current account deficits, as well as a lower reserve cover. Two of three structural performance criteria were met, with the privatization of SOMELEC being delayed for technical reasons and for reasons related to weaknesses in the global energy sector. Real GDP grew by 4.6 percent, slightly lower than envisaged, reflecting weaker external demand for Mauritania’s iron ore and a contraction in agriculture. Inflation remained low at 4.7 percent for the year.
Fiscal policy—Fiscal revenue fell slightly short of the program target due to lower mining exports in the second half of 2001. However, this was more than compensated for by bringing expenditures in below the program target. In 2002, owing to two annual fishing payments, the overall budget position will turn into a surplus of over 6 percent of GDP, despite a significant increase in social and investment spending. Improvements in public expenditure management and in implementation capacity will continue to feature prominently in the 2002 program.
Monetary and exchange rate policy—In the context of subdued inflationary pressures, the central bank reduced the discount rate in the last quarter of 2001 to further ease monetary conditions. At the same time, a large reduction in the net stock of treasury bills in October-November, caused mainly by technical difficulties in forecasting liquidity, led to a sharp drop in the rates and to the emergence of excess liquidity, putting pressure on the exchange rate. Some seasonal factors usually associated with an excess demand for foreign exchange notes also exerted pressure on the exchange rate and widened the gap between the transfer rate and the cash rate. The 2002 program will focus on improving liquidity management and the conduct of monetary policy. The central bank will also improve its foreign exchange note management and play a more active role in guiding the exchange market.
Medium-term outlook—The medium-term macroeconomic framework, consistent with the revised framework in the first PRSP progress report, targets single digit inflation, an average growth of 6 percent, and a 7–8 month reserve cover. This will require a rise in investment, a budget deficit of close to 5 percent, and a current account deficit of 6 percent. While the risks to the outlook appear balanced, Mauritania’s vulnerability to exogenous shocks calls for continued vigilance in macroeconomic policies as well as readiness for strong policy responses.
Rehabilitation of the Social Security Fund (CNSS)—Although the authorities have raised the wage ceiling for contributions to the CNSS, more radical measures to contain the financial deterioration of the CNSS are expected in 2002 on the basis of the recently completed actuarial study.
PRSP progress report and the completion point under the enhanced HIPC Initiative—The first progress report describes a successful first year of implementation, and there has been significant progress toward meeting the completion point triggers. The authorities hope to reach the completion point with the completion of this fifth review.
Staff appraisal—The staff supports the authorities’ macroeconomic policies for 2002 with emphasis on improved macroeconomic policy coordination, particularly monetary and exchange rate policies. The fiscal focus on upgrading all expenditure tracking and implementation capacity is welcomed. Diversification of the economy to contain vulnerability to external shocks, structural reforms related to the CNSS, banking supervision, and meeting all HIPC completion point conditions, as soon as possible are stressed. On the strength of performance in 2001 and the policies for 2002, the staff recommends the completion of the fifth review and the request for waivers.
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June 7, 2002
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Public Information Notice (PIN) No. 02/119
FOR IMMEDIATE RELEASE
October 11, 2002
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DOCUMENTS SECTION
ROOM HQ 7-307 0493
News Brief No. 02/47
FOR IMMEDIATE RELEASE
June 10, 2002
International Monetary Fund
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Washington, D. C. 20431 USA
EXTERNAL RELATIONS DEPARTMENT
Telephone 202-623-7100
Fax 202-623-6772
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May 24, 2002
