Recent Economic Developments and Program Performance

2. Recent economic developments in Mali were broadly positive in 2010. Preliminary estimates indicate that real GDP growth is projected to be in the neighborhood of its 2009 level of 4.5 percent. Inflation is expected to be contained below 2 percent in line with the related regional convergence criterion. However, the current account deficit is estimated to have widened last year because of weaker export performance in the gold sector.

3. Mali continues to perform satisfactorily under its ECF-supported program, reflecting the authorities’ commitment to the program objectives, including raising growth potential, reducing poverty, and improving external viability. For the remaining months of program implementation, they are determined to make further inroads in these areas, notably by pressing ahead with the economic and financial policy measures reported in their MEFP.

4. Program performance on the quantitative front continues to be satisfactory, with all end-June performance criteria and all end-June and end-September 2010 indicative targets having been met, except for the floors set for priority spending. The latter targets were missed as a result of the measures taken by the authorities to under-execute public spending following an anticipated shortfall in corporate income tax prepayments. In this connection, it is noteworthy that the 2011 budget reflects the need to ensure adequate financing of priority spending and emphasizes some of the key priority areas identified in the Growth and Poverty Reduction Strategy Paper (G-PRSP II), including education, health, food security and rural development. Program performance on the fiscal front was in line with program targets during the first nine months of 2010. Tax revenue collection was stronger than expected while public spending was under control. These achievements were partly reflective of the authorities’ efforts to maintain prudent fiscal management notably by containing the basic fiscal balance.

5. On the structural front, all but one measures set as structural benchmarks for the current review were implemented, translating into better budgetary and treasury management and further progress toward reform of the cotton sector. The missed structural benchmark is related to the reporting of government fiscal operations, and in this area progress is being made, notably with Fund technical assistance.

Policy and Reform Agenda for 2011

6. In 2011, the authorities are determined to pursue implementation of prudent economic and financial policies. On the fiscal front, policy and reform measures will continue to be geared notably towards further strengthening expenditure and budget management and containing the basic fiscal deficit.

7. Materializing the authorities’ determination to further improve public financial management, a new action plan has been validated that aims to optimize revenues, align budget preparation and execution with best practices, improve transparency and accountability, and further decentralization. Going forward, they will continue to work closely with the staff, standing ready to take necessary action to ensure continuous compliance with program conditions set in this area.

8. A high premium continues to be put on reforms aimed at further improving tax administration. In this connection, fiscal reforms will notably be geared towards further enhancing revenue performance, notably through streamlining and modernization of tax legislation. At the same time, ongoing efforts to further strengthen tax and customs administration will be pursued, materializing into steps to combat tax evasion and implement enhanced techniques for customs inspections.

9. In view of Mali’s vulnerability to external shocks, debt management will continue to rank high on the authorities’ agenda. In this regard, efforts are underway to compile a database on all agreements that give rise to government domestic debt and external debt guarantees. The agenda set for strengthening debt management also includes the implementation of a system for managing and ensuring timely payments of value-added tax (VAT) credits due to eligible companies. Furthermore, efforts to contain the budgetary float will be pursued. With regard to external debt, preference will continue to be given to external borrowing that is consistent with program requirements.

10. Over the next few months, the authorities intend to submit to the Parliament a supplementary budget that will define ways of maintaining the targeted underlying basic fiscal balance of 1.3 percent of GDP in the face of higher-than-programmed reimbursement of VAT credits in 2011. In order to ensure timely reimbursement of VAT credits owed to gold mining companies, the authorities have decided, effective January 1, 2011, to deposit in a Treasury account at the BCEAO VAT revenues collected on these companies’ imports and part of other such revenues. The subsequent use of these resources is intended to be only for the purposes of repaying VAT credits. At the same time, necessary steps will be taken to clear VAT credit arrears previously accumulated. From the second half of 2011, no VAT exemptions are expected to be granted to any actors operating in the gold mining sector and they will be imposed the standard VAT.

11. In order to improve cash management, the authorities plan to take necessary steps toward the establishment of a single Treasury account. To that resolve, they plan to finalize in coming months an analysis of the impact of transferring outstanding balances of most accounts held by government entities in commercial banks to the single Treasury account at the central bank.

12. As part of their financial sector reform agenda, the authorities will pursue implementation of their financial sector development strategy with a view to promoting the stability and development of the sector. In this respect, they plan to press ahead with a number of measures aimed at strengthening minimum capital requirements for banks and other financial institutions, promoting microfinance while strengthening its supervisory framework, improving credit access for small and medium enterprises, and enhancing the financial sector’s ability to mobilize remittances from migrants. An evaluation of the restructuring of the housing bank, Banque de l’Habitat du Mali (BHM) will also be conducted. Going forward, steps will continue to be taken to ensure that the recapitalization of the bank achieves its intended objectives, including an increase in productive loans.

13. With regard to cotton sector reform, the authorities are taking necessary steps to complete the privatization of the cotton ginning company, CMDT. Privatization of the company is expected to be completed later this year so that the investor to be selected among those shortlisted to provide bids will be able to take over the company prior to the beginning of next cotton crop season.

Relationship with the Fund: Way Forward

14. I would like to convey to Directors that my authorities would welcome an extension of the current arrangement until end-December 2011. Such an extension would give them sufficient time to take stock of Mali’s program relationship with the Fund over the past several years, as part of the ex-post assessment (EPA) of Fund-supported programs implemented in the country over the past seven years. The recommendations to be made by this EPA will inform their subsequent decision about the way forward.

Conclusion

15. In light of Mali’s good program performance, I would appreciate Directors’ support for the completion of the fifth review under the ECF and the authorities’ request for extension of the arrangement and rephasing of disbursement.