Introduction

At the outset, I would like to express my Malian authorities’ appreciation to management and staff for their continuous support, which has helped the country to put in place a sound macroeconomic framework and improve the management of the Malian economy. My authorities are also grateful to the international community for the assistance they are receiving in support of their development agenda.

It is worth noting that, thanks to its stability within a difficult regional environment, Mali has successfully implementented since 1996 sound macroeconomic policies along with vigorous reforms and adjustments supported by the PRGF arrangement. The implementation of these policies has resulted in sustained growth and overall reduction in poverty. While my authorities recognize the challenges facing the country, they are confident that the implementation of the current PRGF program will further strengthen the reforms geared towards strong and sustainable growth with an impact on poverty reduction, as well as economic diversification and building a more resilient economy to external shocks.

Recent Macroeconomic Developments

The Malian economy has experienced a significant slowdown growth in 2004, compared with previous years, due largely to unfavorable exogenous factors. Indeed the low rainfall and locust attacks reduced the agricultural production which is one of the most vulnerable in the region, particularly with regard to the cereal crop and cotton production. In addition, it is important to note on one hand the falling of world cotton prices and the strength of the CFA franc against the US Dollar and on the other hand the negative effects of the crisis in neighboring Côte d’Ivoire notably on the trade and services activities.

Against this background, the real GDP growth for 2004 has been revised downward to 2.2 percent from an objective of 4.7 percent. Moreover the current account deficit excluding grants stands at 7 percent of the GDP owing to lower gold exports and the fall in cotton prices as well as increase of oil prices. The slump of cotton exports and the hike of oil prices have lead to a substantial deterioration in the terms of trade. On the fiscal side, achievements in 2004 have been satisfactory as fiscal outturns have exceeded program targets, despite difficulties encountered during the second semester. With regard to inflation, consumer prices continued to decrease in 2004 and the real exchange rate depreciated slightly on account of the favorable inflation differential with main trading partners.

Performance under Program

In spite of the effects of the external shocks stated above, all quantitative criteria pertaining to the first year of the program have been observed, namely on net domestic financing, non accumulation of external arrears, external borrowing terms and maturity at end-September 2004, floor on tax revenue, ceiling on wage bill and floor on the basic fiscal balance excluding HIPC financed expenditure. In addition all prior actions for completion of the first year review have been implemented. These relate to the adoption of a cotton producer price mechanism and the launching of a bid for recruiting a privatization advisor for the sale of the telecommunication public enterprise. Besides that, 2004 budgetary policies were also on track and a high level of HIPC expenditure was maintained and focused on priority areas such as health and education.

On account of their commitment to fully succeed in implementing the privatization program and their desire to put in place all necessary conditions in this regard, my Malian authorities request waivers for non observance of the three structural performance criteria related to the government divestment from Société des Télécommunications du Mali (SOTELMA), Banque Internationale du Mali (BIM) and Compagnie Malienne pour le Développement des Textiles (CMDT). As stated in the letter of intent, the privatization process of BIM will be completed by end-June 2005 and by July 2006 for SOTELMA while the full privatization of CMDT will be met in 2008 with the assistance of the World Bank.

Macroeconomic Policies and Program for 2005

The macroeconomic policies outlined by my authorities are built on a broad-based consensus in order to strengthen the social and political stability as well as promoting growth, attract investment and alleviate poverty. In 2004, the economy experienced several exogenous shocks, but the authorities were able to contain their adverse impact and continue implementing the program. For 2005, the reform and adjustment efforts will be pursued with a view to achieving all macroeconomic objectives set out in the program. To this end GDP growth is projected to return to programmed level, around 6 percent. The inflation rate is slated to be below BCEAO target of 3 percent, and gross foreign reserves should cover more than 6 months of imports. Owing to the deterioration of the terms of trade, the current account deficit is expected to rise to 9.0 percent of GDP. With regard to the fiscal policy, my authorities remain committed to budget discipline within PRGF objectives and social expenditures will be preserved. In the real sector, a new gold mine will be opened in 2005 as well as a new textile factory besides the expansion in sugar production.

Fiscal Policy

The Malian authorities are committed to the fiscal policy which aims at supporting poverty reduction strategy, preserving macroeconomic stability and keeping public debt at a sustainable level. Therefore, the 2005 budget is broadly in line with the PRGF medium-term framework limiting the fiscal deficit to less than 7 percent of GDP. A number of strong measures have been taken in order to underpin the revenue side of the budget for 2005. These measures include eliminating the tax exemptions granted to the agricultural sector bank and for VAT on the agricultural inputs, returning petroleum product excises to their level prior to the recent reductions and reducing the level of ad hoc exemptions with a view to eliminate them over the medium term. Furthermore, the authorities are determined to complete the study on strengthening of the non tax revenues collection. In this regard they are requesting technical assistance from the Fund.

On the expenditure side, efforts will be aimed at keeping the budget in line with available financing. In their efforts to improve public expenditure management, my Malian authorities have begun to tackle imbalances in the civil service pension fund. Towards the decentralization of government functions and tax collection, the authorities concur with staff that a cautious approach is warranted in view of the capacity constraints.

Regarding the petroleum product excises, the authorities have started raising the average excise tax to the level prevailing in the first quarter of 2004. A first step was achieved in December 2004 and a plan of action for 2005 has been set out assuming that the world prices will remain broadly unchanged.

Monetary Policy and Financial Sector Reforms

The prudent monetary policy implemented by the BCEAO, the regional central bank, will be pursued with the objectives of strengthening the WAEMU’s external reserves and controlling inflation. In this regard broad money is projected to grow in line with nominal GDP and will be mainly driven by the credit to the private sector. As regards the financial sector, the authorities will pursue their efforts to strengthen the banking system as well as the execution of the Financial Sector Development Project.

In the context of a liberalized financial sector, the authorities are determined to finalize according to the new timetable the privatization of the BIM and the BDM, to improve the financial position of pension fund and to develop the insurance sector. All the measures intended by the authorities for the financial sector will be conducted within the framework set out by the BCEAO. Regarding the two banks, it is important to underscore that the contract for a privatization advisor has been signed and the sale of the government’s shares will be completed by end-June 2005. Moreover, an audit of the non-performing loans with banks has also been initiated with a view to draw up an action plan for cleaning up the balance sheets.

Structural Reforms

In the structural area, the authorities’ objective is to further liberalize the economy and increase the role of the private sector in order to foster economic growth, create more jobs and alleviate poverty. To this end their efforts will focus on improving public resources management as well as implementing the privatization program in the cotton, banking and telecommunications sectors.

As regards the cotton sector, the authorities are determined to liberalize and restructure the sector through the adoption of a market-based pricing mechanism and the strengthening of the producers’organisations. With the new mechanism it is envisaged to set up initial producer prices by end-April 2005. Regarding the full privatization of CMDT a new schedule has been adopted which postpones to 2008 the completion of the process. This postponement stems from the need to build a broad consensus which is of critical importance in the sector as it touches the livelihood of a very large proportion of the population. In this regard the assets of the company located in the OHVN Kita zone will be sold to a private partner in 2006. This move defined as the first step will pave the way for a full and complete privatization of the CMDT.

The government’s divestiture in the SOTELMA, the telecommunication public enterprise, is intended to be completed by July 2006, after launching in March 2005 a tender for the recruitment of an Advisor.

In addition, it is worth noting that the authorities will speed up their reforms in the public expenditure management and beef up their policies of social safety net spending. Concerning the increase in wages, the 2005 budget is in line with the WAEMU convergence criteria and the harmonization of the salary grid for civil servants. The authorities are determined to ensure the sustainability of the salaries. To this end, the review undertaken on salary allowances and bonuses will be expeditiously completed. Furthermore, they agree to develop a long-term wage policy consistent with making steady progress towards the attainment of the Millennium Development Goals while taking into account the financing constraints.

With regard to the debt sustainability, the Malian authorities are committed to a prudent debt management as the economy is highly exposed to external shocks. With a view to avoid falling in debt trap after successfully reaching the completion point under the HIPC Initiative, efforts on structural reforms will be pursued besides the assistance from the international community to cover the financing needs of the country. My Malian authorities appreciate the plans by United Kingdom and Canada to fund a portion of the country’ debt service to World Bank and African Development Bank

In the external trade area, my Malian authorities are concerned that the protracted crisis in neighboring Côte d’Ivoire has resulted in elevated costs which have deteriorated their economy’s competitiveness. As far as they are concerned, the authorities will strengthen the structural reforms as they are crucial through boosting labor productivity and reducing factor costs in order to maintain the country’s competitiveness.

Regarding some member’s strong support for IMF gold sales in the context of assisting low income countries, my Malian authorities are not opposed to the sales out of concern for solidarity. However they would request that the Fund and other international institutions dealing with this issue give full consideration to the impact it can have on gold prices in general and on the economy of Mali in particular.

Conclusion

My Malian authorities have demonstrated over the recent years their strong commitment to the reforms and adjustment in order to foster economic growth and fight poverty. In spite of progress made in macroeconomic stabilization and economic growth over the past years the Malian economy remains fragile as evidenced by the shocks experienced in 2004 namely the collapse of cotton prices, locust invasions, surge in oil price and protracted crisis in Côte d’Ivoire. Against this difficult economic environment, the authorities reiterate their strong commitment to implementing the PRGF reform program and are hopeful that their efforts will continue to be supported by the international community. In view of the satisfactory track record of my Malian authorities in program implementing, I would like to request the Board’s support for the completion of this review as well as the waiver of non observance of performance criteria.