Statement by Damian Ondo Mañe, Executive Director for Mali

This paper focuses on Mali’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility. Mali’s economic situation improved in 2003, in spite of a difficult regional environment. The IMF staff considers that the government’s medium-term program, which is aligned to the Poverty Reduction Strategy Paper (PRSP) policy agenda, offers a strong framework for Mali to implement its poverty reduction strategy, pursue fiscal consolidation, and continue the reform process. The IMF staff also notes the progress made in implementing the PRSP, as indicated in the first annual progress report.

Abstract

This paper focuses on Mali’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility. Mali’s economic situation improved in 2003, in spite of a difficult regional environment. The IMF staff considers that the government’s medium-term program, which is aligned to the Poverty Reduction Strategy Paper (PRSP) policy agenda, offers a strong framework for Mali to implement its poverty reduction strategy, pursue fiscal consolidation, and continue the reform process. The IMF staff also notes the progress made in implementing the PRSP, as indicated in the first annual progress report.

I – Introduction

On behalf of my Malian authorities, I would like to thank Fund staff for their comprehensive set of papers and management for continuous support. With the support received under the last PRGF arrangement, which expired in August 2003, my Malian authorities have made significant progress toward strengthening economic stability and creating an enabling environment for private sector-led growth through implementing various structural reforms. Mali also reached the HIPC completion point and benefited from HIPC debt relief.

In spite of these achievements, Mali’s economy is however still facing vulnerabilities. As well as its landlockedness, Mali’s economic performance continues to be susceptible to the vagaries of the Sahelian weather, an export base, which is limited and dominated by gold and cotton with volatile international prices, and the crisis in Côte d’Ivoire. The incidence of poverty also remains high.

In order to deal with these challenges, my Malian authorities are determined to continue with further fiscal consolidation, deepening structural reforms, intensifying diversification of the economy, and strengthening PRSP implementation. To complement these efforts, my authorities are requesting a successor PRGF arrangement with low access for 2004-07. In this vein, the new government which was formed on May 2, 2004 has fully endorsed the macroeconomic policies and objectives set out for 2004-07 as well as the measures to be implemented in 2004 under the new PRGF.

II – Recent Economic Developments

Macroeconomic developments in 2003 were satisfactory despite the regional difficult environment due to the crisis in Côte d’Ivoire. Good weather conditions have favored food and cotton output. Cereal production was 34 percent higher and the cotton crop 46 percent higher in 2003 than in 2002. In addition, the country benefited from higher gold prices while improved access to seaports in neighboring countries reduced the negative impact of the Ivorian crisis. Overall, real GDP growth reached 6 percent in 2003 against 4.3 percent in 2002, and the consumer price index dropped by 1.3 percent, mainly due to a fall in food prices, owing to the record cereal harvest and price reductions for electricity, water and telecommunications.

In the fiscal area, the objectives were exceeded, with the overall deficit falling to 5.1 percent of GDP compared with a target of 8.2 percent. The financing of this deficit stemmed from loans and grants related to development projects as well as budgetary support. The government revenue rose to 16.6 percent of GDP owing to greater efforts in collecting income taxes and tax payments made by the mining companies. The total expenditure decreased from 23.7 percent of GDP in 2002 to 21.7 percent in 2003, well below the target of 25.4 percent, while outlays for social sectors increased. This performance reflected the government measures to limit non-essential spending and keep up the investment budget within the PRSP framework. Moreover, the current expenditure dipped in 2003 as a share of GDP. Strongly determined to streamline the public expenditure management and to fight corruption, the authorities have created an Auditor General position. The task assigned to this high-level watchdog is to assess public policies and control the use of public resources by the government and public institutions.

On the monetary front, the regional Central Bank (BCEAO) implemented a tight monetary policy consistent with the CFA franc’s fixed exchange rate with the Euro and maintaining inflation under control. As regards the banking sector soundness, it is worthy to note that non-performing loans have been declining. In addition, most banks have complied with the key prudential ratios while the microfinance institutions recorded significant progress in terms of membership, deposits and loans.

In the structural reform area, substantial progress has been achieved notably with regard to implementation of a new budget classification and preparation of a manual of budget execution procedures. Furthermore, collaboration between the Treasury and the Central Bank has been strengthened through the monthly financial statement preparation, and the fiscal information coverage has improved. Regarding the privatization agenda, the authorities have agreed with their partners on a timetable for the creation of three or four private companies to replace the cotton company CMDT under the cotton sector reform. The management of the railroad company was successfully privatized while efforts to reach an agreement on the privatization of the cottonseed-oil-company HUICOMA are still underway.

On trade and regional integration, Mali has stepped up efforts to diversify the access routes to the seaports in order to overcome difficulties that occurred with the crisis in Côte d’Ivoire. Moreover, the WAEMU’s common external tariff adopted in 2000 was fully implemented. On the convergence front, one can note the fulfillment of all but two regional criteria, that is the tax receipts-to-GDP ratio and the external current account deficit.

In the external sector, the current account deteriorated in 2003 due to the increase in transport costs and the falling of tourism revenues, which have had a negative impact on the services account. However, owing to the increase of exports, debt relief under the enhanced HIPC initiative and external budgetary support, the balance of payments recorded a significant overall surplus enabling Mali to contribute further to the gross international reserves of the regional Central Bank, which have risen to more than seven months of imports. In order to sustain these performances, the authorities are fully determined to diversify the country’s export base. To this end, private investors recently established a new spinning factory and new gold mines are scheduled to operate in 2005 and 2006. On the external debt, the debt service ratio has declined, owing to higher exports earnings. In addition, we would like to underline that Mali has maintained good relationships with the donor community. Last March, at a Roundtable Conference held in Geneva donors pledged USD 2.4 billion in assistance to support my authorities’ medium-term economic and financial program.

III – The Medium-Term Framework

For the medium term, the strategy for economic growth and poverty reducing policies will be guided by the sole frame of reference for the authorities, the Poverty Reduction Strategy Paper, which was adopted in May 2002. The PRSP annual progress report indicates that, despite challenges mostly related to capacity, important progress has been made in strengthening institutions and governance, increasing the access to health, education and other social services, and advancing infrastructure development notably in the areas of electricity, railways, roads, and airport.

Maintaining a stable macroeconomic environment and pursuing reforms based on priorities around three-fold development (institutional, human capital and physical infrastructure) constitute their strategy to achieve strong and sustainable growth conducive to poverty reduction. The reforms will be conducted with the view to deregulate and diversify the Malian economy while encouraging the development of the private sector. Based on this strategy and strongly and broadly supported by my authorities, the macroeconomic objectives for 2004-07 are to achieve an average annual real GDP growth rate of at least 5 percent, an annual inflation of less than 3 percent and a current account deficit (excluding official transfers) of less than 7 percent of GDP.

As regards fiscal policy, in accordance with the stated medium-term objectives, the program seeks to increase government resources and improve the management and prioritization of public expenditure while favoring the development of the private sector. Thus on the revenue side, my authorities intend to expand the tax base by reducing exemptions, strengthening tax administration, and developing a property tax system. On the expenditure side, actions will comprise improving management and prioritization, and my authorities will reallocate funds towards priority programs set out in the PRSP. They will also ensure adequate human and financial resources for local governments using the central budget and the development of a local tax system. The broader process of decentralization and downsizing of central administration will help reduce expenditure inefficiencies and wastes. The government will also pursue a policy aimed at maintaining the wage bill to less than 5 percent of GDP and containing recruitment to the needs of the social sectors and to other fiscal objectives. Along with this prudent fiscal policy which also includes the continuation of efforts to improve procedures for the design, execution and monitoring of budget operations, my authorities will seek to improve governance through the strengthening of public spending controls and audits.

The monetary policy, which is conducted in the context of the regional central bank, will aim at keeping inflation below 3 percent, consistent with the parity of the CFA franc with the euro. Financial sector reform will seek improvement in the performance and competitiveness of the financial system, through a wide range of measures including the divestiture of government and the BCEAO from the capital of three commercial banks (Banque Internationale pour le Mali, Banque de Développement du Mali, and Banque Commerciale du Sahel); ensuring the compliance of banks with all prudential ratios following the banking commission’s recommendations; pursuing the legal and regulatory framework of the financial system; improving human capacity in the judicial recovery of bank debt; and encouraging further the use of real property as bank collateral. As regards nonbank financial institutions, key measures include improving the supervisory capabilities for the microfinance sector, strengthening the regulatory framework and capacity of the insurance sector, and restoring the financial viability of the social security and the civil service retirement institutions through their restructuring.

Concerning structural reforms, my authorities intend to enhance competitiveness and the diversification of the economy, with the view to create an environment conducive to the development of the private sector. The objective is to achieve strong and sustainable growth by increasing the economy’s flexibility and its ability to withstand exogenous shocks. The analysis of the growth potential of key sectors and their impact on poverty reduction will serve as the basis for this policy. As detailed in the authorities’ Memorandum of Economic and Financial Policies for 2004-07, structural reforms will be pursued on several fronts, of which the simplification of administrative procedures for enterprises and that of regulatory and tax framework; continuation of the enhancement of the judicial system; compliance with regional legislation on indirect taxation and support for investments; further liberalization of the cotton sector and other sectors of the economy; and expansion of the basic economic infrastructure and increase of its efficiency.

The strategy also encompasses the development of skilled human resources, particularly in the education and health sectors, with ten-year programs in each of these two areas. Vocational and continuing education programs will also be developed to respond to the sectoral demands and to the need for permanent human capacity improvement. Other measures will involve reducing labor market constraints and ensuring that the pay structure provides sufficient incentives for investment in the two key sectors of education and health.

Privatization is another key priority in the government’s strategy, with emphasis on the cotton and telecommunications sectors but also the completion of the process in the pharmaceutical sector, the reduction of government’s equity stake in the sugar and river transport companies, and the granting of a concession to operate the Malian airport company.

Beyond the mobilization of domestic resources along the lines described above, maintaining the current debt sustainability beyond 2015 will require intensifying economic diversification with the view to boost exports; seeking concessional terms in any new debt; and favoring grants over loans for the financing of investment needs so as to bring the share of grants in external financing from 40 percent currently to 60 percent over the medium term. We call on the international community to help Mali achieve these objectives.

The limited capacities facing the country induce the authorities to request the continuation of technical assistance from the Fund and other development partners to improve the reliability of economic statistics in virtually all areas.

As regards poverty reduction, my authorities are strongly determined to pursue the fight against poverty through a strategy that includes the private sector and rural area-led growth. The PRSP endorsed by stakeholders has identified key priority areas on which to focus projects and programs for poverty reduction. The first progress report covering 2002-2003 clearly highlights commendable achievements in health and education sectors as well as governance and institutional and infrastructure development.

Fully aware that the attainment of the poverty reduction objectives will be assured if sectoral actions in these areas are pursued and strategies in other sectors are similarly articulated and implemented, my authorities will continue to use their PRSP framework as the main guide of their policies and actions, and build on the current momentum in the period ahead.

IV – Conclusion

To reiterate, Mali has under past Fund-supported programs, implemented sound macroeconomic policies and achieved a remarkable economic performance as outlined in the ex post assessment of the country’s programs. In spite of the progress made, there remain challenges that need to be tackled in order to boost economic growth, stimulate economic diversification and reduce poverty. My authorities are strongly determined to build on past and recent progress and persevere in their reforms and adjustment endeavors. In so doing, they are hopeful that they can rely on assistance from the international community to which they renew their appreciation. They request a new three-year arrangement under the PRGF with limited access.