Abstract
Mauritania successfully completed its previous poverty reduction growth facility arrangement in December 2002. The focus of this report is on the effectiveness of policies adopted in the last few years and the medium-term strategy. Macroeconomic stability under the IMF-supported program and the above structural reforms underpinned progress in reducing poverty and improving social indicators, and the development of the Poverty Reduction Strategy Paper (PRSP) was a major achievement. The banking system has remained highly concentrated with inadequate financial intermediation, and difficulties have persisted in the operations of the foreign exchange market.
1. This statement reports on the implementation of prior actions that have been specified in the Memorandum of Economic and Financial Policies (MEFP) and provides an update on the main recent political and economic developments. The information contained in the statement does not alter the analysis and appraisal contained in the staff report.
2. The three prior actions have been implemented on time. In May, the authorities communicated a report on budget execution for the first three months of 2003, based on treasury accounts and reconciled with the central bank accounts. Commercial banks’ net foreign exchange positions as of end-April 2003 have been communicated to Fund staff on July 3, and conform with the related prudential ratios. The authorities instructed end-June commercial banks to close all their central government accounts and to transfer the deposits to the Central Bank of Mauritania (BCM). To neutralize the impact on banks’ liquidity, the BCM opened special accounts with commercial banks in the same amount, which will progressively be drawn down over the next three years, according to bank-specific schedules that are expected to be finalized in the coming weeks.
3. The recent failed military coup and the subsequent government reshuffling has not altered the authorities’ determination to proceed with the program as agreed with staff in April. The coup attempt had a negligible impact on the economy and therefore has no significant implications for the agreed program. On July 6, President Taya named a new prime minister, and a cabinet was formed, in which a new finance minister was appointed. The BCM Governor and the minister for economic affairs and development had already been replaced in May, leading to a complete renewal of the three key officials that negotiated the program. However, the new team has signaled a firm intention to proceed as scheduled with the new three-year program, and the new BCM Governor, Mr. Tebakh, has signed the letter of intent. In his first address to the parliament, the prime minister confirmed the policy orientations of the previous cabinet, as defined in the PRSP.
4. Preliminary indications for the first half show that 2003 macroeconomic targets are attainable. Production of iron ore was 13 percent higher in the first six months of 2003, as compared with the same period of last year. Provided the declining trend in fishing activity does not accelerate and rainfalls are normal, the targeted real GDP growth rate for 2003 (5.4 percent) is within reach. The inflation rate continued its decline through May with an average monthly rate below 0.1 percent, and is currently on track to achieve the 3.5 percent end-year objective.
5. Fiscal outcomes and monetary aggregates through May were close to program targets. Tax revenue slightly exceeded program projections, boosted by recent measures to improve tax collection, including financial incentives for the tax directorate’s staff. Total government expenditures remained close to the program’s projection. According to the latest quarterly report on Heavily Indebted Poor Countries (HlPC)-related expenditures, the execution of HIPC-financed programs has markedly accelerated over the first quarter of 2003.
6. In recent months, the exchange rate vis-é-vis the U.S. dollar has been stable while Mauritania’s external position further strengthened. The level of international reserves reached US$380 million as of end June 2003, compared with US$345 million in the program projection, in part due to a slowdown in the central bank’s sales of foreign exchange. The ouguiya depreciated in real effective terms by about 5 percent during the first half of 2003, reflecting the appreciation of the euro against the dollar. The average spread between the parallel and the official rates remained around 5 percent during the first half of this year.
7. Ongoing reforms are proceeding as scheduled in the program. A FAD technical assistance mission is currently in Mauritania to review direct taxation and formulate proposals aimed at simplifying and improving the efficiency and equity of the present system. A substantial number of the National Social Security Fund (CNSS) staff have already expressed interest in a voluntary departure program that should cut in half its workforce by June 2004. Specific proposals to address two recommendations raised by FIN’s safeguard assessment (on improving internal control and setting up an internal audit committee) are expected to be approved by the new BCM governor in the coming days.
8. The authorities have consented to publish the staff report.