The Executive Board of the International Monetary Fund (IMF) completed the second and third reviews of Mali’s economic performance under an SDR 9.3 million (about US$13.5 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 05/55). The completion of the reviews enables the release of a further SDR 2.7 million (about US$3.8 million), which will bring the total amount drawn under the arrangement to SDR 5.3 million (about US$ 7.7 million).

In completing the review, the Executive Board granted waivers for the nonobservance of performance criteria.

Following the Board discussion of Mali on December 19, 2005, Mr. Agustén Carstens, Deputy Managing Director and Acting Chair, stated:

“The Malian authorities are to be commended for the continued implementation of sound macroeconomic policies in the face of significant exogenous shocks. These policies have supported macroeconomic stability, limited the deterioration of public finances, and maintained a focus on reducing the incidence of poverty. The gradual pace of structural reform implementation does give rise to some concern, however, since it could constrain Mali’s potential for robust economic growth and accelerated progress toward the Millennium Development Goals.

“Mali remains vulnerable to further shocks, linked to weather conditions and a volatile terms of trade. Accordingly, it may be necessary to further strengthen adjustment efforts, in particular by maintaining a prudent fiscal position and allowing domestic prices to adjust to changes in international prices. This will require the continued pass-through of increases of international oil prices to pump prices and the continued implementation of a flexible producer price mechanism for cotton that limits the risks of budget support to the sector, while also protecting farmer interests. While the policy response to food shortages in 2005 was commendable, the authorities need to examine impediments to food trade, particularly at a regional level.

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“Ongoing public finance management reforms need to forge ahead, and medium-term budgetary policies relating to pensions, the efficiency of spending, and social safety net payments will continue to require attention.

“Despite the privatization of the cottonseed oil company, continued delays in the government’s disengagement from the cotton, banking, and telecommunications sectors raise concerns over its commitment to private sector development. The long-term development of the cotton sector requires concrete steps to open up the sector to private capital, strengthen financial management, and other operational reforms. The 2006 program of structural reforms regarding privatization and management of state enterprises appropriately addresses the key challenges. The full implementation would provide a clear signal of the authorities’ policy priorities.

“Determined reforms to improve the investment environment and competitiveness are needed to boost productivity and the growth potential of the economy. Indeed, the authorities may wish to include an explicit growth strategy in the Poverty Reduction Strategy being developed next year.

“The CFA franc peg to the euro continues to underpin low inflation and interest rates in Mali. Moreover, the West African Economic and Monetary Union’s economic convergence criteria are a useful discipline on the conduct of fiscal and monetary policies. Surveillance of the financial sector needs to be strengthened while, at the same time, steps need to be considered to reinvigorate financial intermediation and private sector lending.

“Mali’s eligibility for the Multilateral Debt Relief Initiative will substantially reduce the risk of debt distress over the medium term. In view of the country’s continued vulnerability to shocks and substantial external financing needs, preserving debt sustainability will require limiting new borrowing to highly concessional loans,” Mr. Carstens said.

The PRGF is the IMF’s concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper, or PRSP. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies, to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.