I would like to express my deep appreciation to Management and the Board for their guidance and continued support to my Mauritanian authorities. I would also like to thank Staff for the quality of their advice and assistance to Mauritania.

My Mauritanian authorities continue to make substantial progress in stabilizing the economy, and laying the foundations for higher and more sustainable growth rate and for improving the prospects of reducing poverty. Important reforms have effectively been implemented in a number of areas, notably in governance and the financial sector. These include strengthened oil revenue management; increased transparency in this area; improved technological support in customs administration; increased utilities tariffs to better account for the marginal costs, improve the financial situation of enterprises in the water and electricity sectors while limiting the burden on government budget; the pursuit of financial soundness of the central bank and commercial banks; and the adoption of a regulatory law for microfinance activities.

My authorities acknowledge, however, that more needs to be done if they are to raise more rapidly the living standards of the populations. Progress is especially needed in the areas of business climate, private sector development, and the restructuring of public enterprises. While they reiterate their commitment to press ahead with their reforms in these areas -in close collaboration with the World Bank-, and also to maintain a prudent fiscal stance, they call on the international community to increase financial support to Mauritania, given the significant downward revision of oil production and revenues in the period ahead, to enable a full implementation of their development strategy. In this regard, they look forward to a successful donors’ conference meeting in Paris, in December 4-6, 2007. They would also like to take this opportunity to call on all members that have not yet provided debt relief under the HIPC and MDRI initiatives to do so, on comparable terms.

The implementation of the PRGF-supported program continues to be satisfactory. All quantitative performance criteria at end-June 2007 were met with the exception of the criterion on the non-contraction of nonconcessional borrowing. The authorities had informed staff, prior to the second review, that two loans intended to finance highly needed social and development projects did not meet the requirements under the program, in terms of their minimum grant element. The largest of the two loans -129 million dollars- granted by the Arab Fund for Economic and Social Development (AFESD) to finance a project to supply Nouakchott, the capital, in drinking water had a grant element of 34.6 percent -less than one percentage point below the 35 percent required under the program (it should also be noted that the loan was initially concessional but was later revised to take into account cost increases). The second loan, however -of a lesser amount (18 million dollars) and granted by the Islamic Development Bank (IsDB) to ease bottlenecks in the electricity sector- had a lower grant element. The authorities have since initiated negotiations to revise the conditions of the loans, with the view to meet the loan concessionality requirements under the program. They are grateful, in particular, to the Japanese authorities for providing a grant that will help raise the grant element of the Islamic Development Bank loan to 35 percent. In view of the important economic and social dimension of the projects involved, the remedial actions swiftly taken, and the authorities’ good faith, they request a waiver for the nonobservance of the performance criterion.

My Mauritanian authorities would also like to reiterate their commitment to a prudent borrowing strategy consistent with Mauritania’s debt sustainability framework. In order to avoid repeating the sort of problems related to the contracting of nonconcessional debt, they will considerably strengthen the framework for debt management, including through mechanisms to monitor and manage public debt, disseminate information on the government external debt, and keep, on a timely basis, the Fund staff informed of any new loans contracted and of the level of debt service. My authorities have committed to resort solely to concessional borrowing and grants to consolidate the gains achieved in terms of debt sustainability under the enhanced HIPC Initiative and the MDRI.

In view of their continued good record of policy and reform implementation, the remedial action undertaken to correct the sole quantitative criterion missed under this review, I call on the Executive Board to grant my authorities a waiver of performance criterion and to approve the completion of the second review under the PRGF arrangement.

I. Recent Economic Developments

Oil production has continued to be revised downward in 2007 due to the persistence of technical difficulties experienced by the main foreign offshore operator. It reached an average of 16,000 barrels-per-day (bpd) at end-August 2007, compared to a projected 21,000 bpd. Consequently, real GDP growth will likely reach slightly less than one percent in 2007. Nonetheless, macroeconomic performance remains in line with the objectives of the program. Non-oil GDP growth is expected to reach 5.7 percent in 2007 thanks to the strong performance by the agriculture, construction, and mining sectors.

The basic non oil fiscal balance reached a surplus of 0.5 percent of non oil GDP at end-June 2007, compared to a projected deficit of 1.4 percent, despite the upward revision of the wage bill by 5 percent (due to corrections to its end-2006 level). This good performance was due to higher-than-expected fiscal revenues and also to the slow execution of capital spending.

Monetary policy implementation remained prudent in accordance with the central bank’s objective to reduce inflation and maintain price stability. Broad money grew by 5 percent during the first half of 2007, lower than the projected 7 percent but in line with non oil GDP. Credit to the economy, however, grew more rapidly than projected and accompanied the rebound in economic activity in the non-oil sector. Inflation at end-August 2007 reached 6.6 percent -also lower than initially projected-, despite the impact of the surge in commodities prices worldwide. International oil price increases were subsequently passed on to the price of electricity this month, and also at the pump by gasoline importers. Overall, while consumer price inflation at end-2007 will likely exceed the previous projection of 7.0 percent, the year average will remain within the program target.

Due to the simultaneous effect of the substantial drop in the volumes of oil exports, on the one hand, and the increase of oil import prices, on the other, the current account balance further deteriorated in 2007 shifting from a surplus of 1.5 percent of GDP during the first semester of 2006 to a deficit of 7.3 percent in the first semester of 2007. Foreign exchange reserves reached 258 millions of dollars at end-August 2007, equivalent to 3.4 months of import cover. The nominal exchange rate appreciated earlier in the year following the launching of the foreign exchange market in January 2007, due in part to the intervention of the central bank to mitigate the inflationary impact of a strong Euro in which the majority of Mauritania’s imports are labeled.

On the structural front, the program benchmark pertaining to the publication of the 2006 financial statements of the central bank was met last June and the draft law on the transparent and optimal management of oil resources was submitted to Parliament in October. This draft law takes into account the recommendations made by FAD, notably the need to integrate the management of the oil fund (FNRH) in the medium-term budgetary framework. Furthermore, the 2006 EITI report was published in August 2007, the audit of the FNRH was finalized in October 2007, and the audit of the accounts of the national hydrocarbon company (SMH) at end-2006 was initiated. As regards the financial sector, the audit of the financial statements of all commercial banks at end-2005 have also been finalized in September 2007.

With regard to public enterprises, prices were adjusted in 2007 in the gas, water, and electricity sectors with the objective of improving the enterprises’ financial situation, and to avoid additional transfers from the government in 2007. Gas prices were increased in February while water and electricity prices were adjusted in October.

II. Policies for 2008 and the Medium Term

Oil production in the medium term is expected to remain weak. The authorities have projected a prudent level of 13,000 bpd for 2008. This will result in a real GDP growth of 4.5 percent for the whole year. Excluding oil, growth should reach 5.7 percent, driven mainly by the mining sector, especially by strong iron ore, gold, and copper production while agriculture and construction would revert to their medium-term potential. Inflation is expected to decline to 6 percent at end-December 2008.

On the fiscal sector, the authorities project a basic non oil fiscal deficit at 2.9 percent of non oil GDP in 2007 despite the increase in the wage bill. Additional measures to increase tax revenues will be implemented. The authorities will also keep a strict control over expenditures while safeguarding priority sectors. For 2008, they intend to further reduce the basic non oil fiscal deficit to 1.7 percent of non oil GDP. Efforts will also be made to contain the wage bill until measures are considered following the results of the civil service census, expected to be finalized by early 2008.

Monetary policy will continue to be guided by the objective of reducing inflation. In order to closely manage liquidity, the central bank will make use of its new instrument whenever needed while continuing to improve its collaboration with the Ministry of Finance on the management of treasury bills. With IMF assistance, the central bank will also prepare by the end of December 2007 a plan to restructure and securitize part of its claims on the government. With regard to exchange rate policy, the authorities will limit their interventions on the foreign exchange markets to smooth day-to-day fluctuations out.

On the external front, the current account balance should remain in 2008 at the same level as in 2007 (6.7 percent of GDP) as it continues to be influenced by weak oil production and strong mining growth.

To strengthen and modernize the financial sector, my authorities will implement vast and ambitious reforms, including measures based on the recommendations of the safeguards assessment and the FSAP. The measures that will be adopted by March 2008 include the strengthening of provisioning conditions, the substantial increase in the minimum capital requirement, and the adoption of IFRS norms. In addition, audits of the financial statements at end-2007 of all commercial banks will be undertaken in 2008 by internationally renowned audit firms.

III. Conclusion

Mauritania continues to make important strides in macroeconomic stability and laying robust foundations for stronger and sustainable poverty reduction. Fully cognizant of the challenges that lies ahead, particularly in light of the lower-than-expected oil revenue (due to technical difficulties), my Mauritanian authorities continue to make efforts, both on the policy and reform fronts, to meet these challenges. They appreciate the continued support of the Fund and are hopeful that the international community will maintain its assistance to the country. In particular, they call on all of the country’s remaining bilateral creditors to materialize debt relief on terms comparable with those granted under the enhanced HIPC Initiative.