The following information has become available since the issuance of the staff report for the 2002 Article IV consultation and the fifth review under the PRGF arrangement (EBS/02/77), the completion point document and its supplement (EBS/02/82), as well as the Joint Staff Assessment of the first PRSP progress report (EBD/02/73). This information does not change the overall staff assessment of performance under the review or progress made toward reaching the completion point under the enhanced HIPC Initiative.

1. The two prior actions were met: the staff received toward mid-May the first quarterly report of the monetary policy committee and a signed copy of the implementing regulations for the procurement code adopted by the government.

2. The privatization of SOMELEC (a structural performance criterion for end-June under the PRGF and a floating condition for the completion point) was not completed. The privatization committee carefully assessed the only financial offer they received (since only one bidder remained) in relation to the asset value of SOMELEC, and considered it unacceptable. The authorities are currently in the process of discussing with the World Bank their strategy on how to re-launch the process.

3. Recent macroeconomic developments:

   • Consumer price inflation remained low, with the annualized first quarter inflation rate at 1.5 percent. On current trends, inflation is likely to fall below the program projection of 4 percent for 2002. The foreign exchange market remains stable, with the ouguiya depreciating slightly (by about 3.8 percent) vis-à-vis the U.S. dollar between January and May. Latest data from the authorities (May 30, 2002) indicate that the gap between the interbank rate (transfer rate) and the parallel rate for cash transactions (cash rate) remains below 7 percent.

   • Preliminary data indicate that the trade surplus in the first quarter of 2002 was lower than its level during the same quarter of last year. This resulted essentially from lower exports, particularly in the fisheries sector, and marginally higher imports. Gross official reserves reached US$359 million at end-March, slightly above program projections.

   • Preliminary data suggest that the fiscal position is in line with projections, with tax revenues slightly exceeding projections during the first quarter (by 4.6 percent). Broad money grew as projected, while credit to the private sector fell short of its growth target. The stock of T-Bills increased by about UM 4 billion, and the average interest rate on T-bills rose to over 5 percent by end-March (compared with 3 percent at end-December 2001).

4. The first quarterly report of the monetary policy committee indicates some improvement in the use of indirect monetary policy instruments. The staff is reviewing the report and plans on discussing its content with the committee during the next mission to further enhance its focus.

5. The staff received the central bank draft report on the transfer of government deposits from commercial banks to the central bank (a benchmark for end-June 2002), which is being reviewed by the staff. In addition, staff has already reviewed the drafts of two new banking directives received during the previous mission, and have sent comments to the authorities for further discussion.

6. A Fund mission to prepare a fiscal Report on the Observance of Standards and Codes (ROSC) and a parallel Bank mission to prepare a Country Financial Accountability Assessment (CFAA) were in Nouakchott during the second half of May 2002. The preliminary ROSC report is expected to be completed this summer.